Geopolitical Outlook for Investors in 2025

The “Year of Elections” is over. By most estimates, almost half of the global population lives in countries that held some form of election in 2024. Many of these elections occurred in regionally or globally important economies amid persistent economic uncertainty caused by several factors, including inflation, inequality, and immigration. These elections often focused on policies directly affecting investors in those countries, such as policies related to taxes, trade, and government regulation of business. The reality, however, is that these elections are only the start of a period of further change as newly elected or re-elected governments put their mandates into practice and new global events continue to arise that impact cross-border trade and investment ties.

The global risk matrix is further affected by an international security environment that remains highly volatile. While Israel may have agreed to ceasefires with Hamas and Hezbollah and there are prospects for the opening of negotiations over the war in Ukraine, both conflicts have every chance of re-escalating and possibly expanding. Moreover, strategic competition between countries, particularly between the US and China, which is already disrupting global supply chains and investment flows, is likely to continue.

The Year of Elections may be over, but the impact of geopolitical events on investor risk is as strong as ever. A major new variable in the global political environment is, not surprisingly, the return of President Donald Trump to a second term. Even his most ardent supporters would agree that his approach to government yields unpredictability and risks the emergence of frictions with both allies and strategic competitors. His threats (and in some cases actions) to impose tariffs on many US imports, including from historical US allies, raise the prospects of trade wars and further disruptions to global supply chains – adding variables for investors to assess when undertaking geopolitical risk analysis. However, nothing should be treated as a foregone conclusion, nor should the US in a second Trump term be seen as the source of all potential further disruptions.

This article analyzes the implications of the following four geopolitical events from 2024:

This article also explores key lessons investors and interested observers can draw from these events.

(For the complete version of this resource, which explores these issues in more detail, see Geopolitical Outlook for Investors in 2025 on Practical Law.)

The Year of Elections: Anti-Incumbency and Populism

The Year of Elections is a testament to the robustness of democratic institutions. While this is not a universal observation and some of last year’s elections were largely cosmetic — Vladimir Putin’s election to another term as president of Russia being one example — it is evidence of the trust people still place in their ability to exercise their democratic rights. Even in countries where elections were marred by allegations of fraud, post-election popular protests were further evidence of underlying support for the democratic process.

However, one particularly striking trend in 2024 was the vulnerability of incumbents, including in places where they were widely expected to win. This speaks to the growing unpredictability of electoral politics in many parts of the world.

Taiwan Elections

In what was probably the first closely watched election of 2024, Lai Ching-te, the candidate of the ruling Democratic Progressive Party (DPP) was elected to Taiwan’s presidency, albeit with a significantly reduced percentage of the vote than his predecessor. The DPP lost its legislative majority, making implementation of its policy agenda less straightforward. China’s response to Lai’s election was comparatively restrained and may reflect Beijing’s belief that divided control of the presidency and the legislature may inhibit any rash political actions, such as a declaration of independence. Despite this, Taiwan remains one of the world’s most volatile potential geopolitical flashpoints (see Taiwan below).

The EU: National and EU Parliamentary Elections

Elections across all 27 member states for the European Parliament as well as national or regional elections in some EU countries demonstrated the continued potency of populism throughout Europe, particularly in France and Germany.

EU Parliamentary Elections

Elections in June 2024 across the entire EU for the European Parliament saw a significant swing in support in many countries to populist, right-wing parties amid concerns about the effects of immigration, inflation, and economic insecurity. However, this shift away from centrist, establishment parties was not as dramatic as some had predicted and may reflect a hesitancy among some voters to turn their backs on establishment parties completely. The test will be whether politicians will have learned from these events and seek to address the underlying concerns driving the collapse in support for political centrists across Europe.

French Elections

The poor performance of President Emmanuel Macron’s party in French elections for the EU parliament led to him unexpectedly calling snap elections for the French National Assembly. In the first round of those elections, support for populist parties on both the right and the left rose substantially, but the second round of voting saw the right-wing, populist Rassemblement National under leader Marine Le Pen fall short of securing a full majority. In his year-end address, President Macron acknowledged that the snap elections had yielded “more divisions in the Assembly than solutions for the French” and the country faces some of its greatest political uncertainty in decades as political pressure grows on President Macron to reverse some of the measures in his controversial pension reform program.

German Regional Elections

While Germany did not have national elections in 2024, regional elections saw an increase in support for populist parties on both the left and the right. In November, the coalition government of incumbent Chancellor Olaf Scholz collapsed after he dismissed German finance minister Christian Lindner over differences in economic policy as the country struggles with systemic challenges in its manufacturing sector. National elections for the Bundestag took place in late February 2025 with a win for the conservatives under Friedrich Merz.

Implications for Investors

Growing support for populists across Europe yields considerable policy uncertainty for investors contemplating the overall regulatory landscape. Populists on both the left and the right often defy traditional ideological definitions, mixing social conservatism on issues such as immigration and crime with support for much greater intervention in economic policy and some skepticism about initiatives such as decarbonization and the transition to greener energy sources. There is no indication that the growing affinity of European voters for these parties over traditional, establishment candidates will abate any time soon as long as the grievances concerning voters in these countries remain unaddressed.

India and South Africa

Elections in two of the world’s key emerging economies yielded uncertainty about their future political and economic direction.

Indian Elections

India gave political observers one of the biggest surprises of 2024 when Prime Minister Narendra Modi lost his parliamentary majority. Economic insecurity was a principal concern for voters as India’s economic growth weakens at a time when robust growth is necessary to absorb the country’s significant population of young adults entering the labor force. Modi was expected to pursue further economic reforms had he secured a majority, but this may prove more complicated as he governs in a coalition.

South African Elections

South Africa’s ruling African National Congress (ANC) lost its majority in the country’s National Assembly for the first time since 1994. It now governs in a coalition that includes parties to which it has been ideologically opposed. The coalition government is committed to focusing on economic growth given the many endemic problems South Africa faces, including high unemployment, corruption, and failing utilities. Some of the coalition partners have expressed skepticism about the ANC government’s previous efforts to align South Africa more closely with Russia and China on foreign policy issues and may try to push the government to rebalance by improving relations with other countries, including the US, EU, and Japan.

However, these rebalancing efforts may be complicated by President Trump’s executive order cutting off US financial assistance to South Africa over its new laws permitting uncompensated land expropriation in certain circumstances.

Implications for Investors

Many foreign investors are looking to India as an alternative to China, especially in the manufacturing sector, to limit their geopolitical risks and mitigate some of the challenges they have faced in China, including forced technology transfer, limited market access, and preferential treatment for state-owned enterprises. A coalition government may make it more difficult to adopt the reforms needed to liberalize the Indian market to attract foreign investment. (For more information, see Foreign Investment in China Toolkit and Regulation of Foreign Investment in India on Practical Law.)

The new South African coalition agreed to a series of priorities intended to promote foreign economic growth, including “infrastructure development, structural reforms and transformational change, [and] fiscal sustainability.” Investors are cautiously optimistic that the new coalition government can implement the reforms needed to attract foreign investment. (For more information, see Private Mergers and Acquisitions in South Africa: Overview on Practical Law.)

The UK

The defeat of the UK’s deeply unpopular Conservative government in July’s general election was no surprise. However, despite securing a landslide in the number of seats won in the House of Commons, the incoming Labour government led by Sir Keir Starmer won only one-third of the popular vote. This reflects broader fragmentation in UK politics away from the two traditional dominant parties. What has been more surprising is the speed with which the new Labour government has become unpopular with the UK public, largely due to unpopular budgetary and tax measures, including increases in employer taxes and the termination of subsidies to pensioners for winter heating costs.

Recent polls show that Labour appears to be losing support to the insurgent, populist Reform UK party led by Nigel Farage, who made his name in UK politics by campaigning for a referendum on the UK’s continued membership in the EU. Reform UK is a political party in development and faces much greater media scrutiny of its policy agenda. A major test will come with local and regional elections scheduled to take place over the next year.

Implications for Investors

Labour was elected on promises to grow the UK economy, but it faces the risk of stagnating. In February, the Bank of England halved its growth forecast for the UK economy, indicating that the country would only narrowly avoid a recession in 2025. The Labour government has committed itself to strict spending limits, but adherence to these amid weakening fiscal conditions could force it to make further unpopular tax increases or spending cuts.

The overall investment picture is also hampered by economic uncertainty. The Institute of Chartered Accountants of England and Wales reported a decline in business confidence across all sectors and regions of the UK economy in the fourth quarter of 2024. This links, in part, to underlying macroeconomic conditions and tax policies, but businesses are also concerned about parts of the Labour government’s legislative program that may stifle investment. The government is proposing major changes to UK employment laws to make them more worker-friendly, while the government’s pursuit of a net zero decarbonization target by 2050 risks further raising UK energy costs, which are already some of the highest in the world.

While undervalued equities and a weaker pound may make acquisitions of UK businesses more attractive to foreign investors, proposed regulatory reforms may counteract those benefits. If the Labour Party suffers significant defeat in upcoming local and regional elections and continues to lose support in a stagnating economy, pressure will start to build from within the party for the government to scale back its legislative ambitions or reset its approach to economic policy more generally.

Takeaways from the Year of Elections

Given the sheer number of elections in 2024, and the economic, cultural, political, and geographical disparities existing across the range of countries that held them, drawing universal conclusions from their results risks over-simplification. However, some general trends can be discerned that bear further consideration when assessing the overall impact of the Year of Elections on the geopolitical risk environment and investor management of these risks. They are as follows:

Trade Wars, Protectionism, and Economic Nationalism

When assessing the current geopolitical landscape, a particularly striking trend has been the return of protectionism and economic nationalism. The decades following the fall of the Berlin Wall represented something of a golden age of globalization, with barriers to trade and investment falling systematically. That ended over the past decade and, while US trade policy during President Trump’s first term is cited as a pre-eminent example of this, these trends are not confined to his administration or the US. However, the issue will gain renewed focus as President Trump implements new tariff increases and additional trade-related measures and other governments respond in kind.

Protectionism impacts not only flows of goods but also cross-border investment capital. While some foreign governments may impose retaliatory tariffs, especially if they are major purchasers of certain US products, other governments may determine that their leverage in retaliation lies not with countervailing tariffs but with measures targeting US investors doing business within their borders (for example, the measures announced by the Chinese government against Google and other US companies).

In looking at the potential future trade and investment policy landscape, several factors bear consideration:

Finally, there is the increasingly acute overlap between trade policy and national security linked to continued strategic competition between countries, which is separately considered given its inherent complexities (see Strategic Competition and Cross-Border Investment: The Further Weaponization of Capital below).

Tariffs as a Broader Policy Tool

In considering the risks of disruption to global trade flows from new tariffs, investors must recognize that tariffs are no longer purely trade policy tools. They are also used to gain leverage in all manner of foreign policy disputes and negotiations. This is most evident in how President Trump explicitly links tariff policy to a host of other concerns.

Border Security

Shortly after his election, President Trump threatened to impose tariffs on all imports from Canada and Mexico to pressure their governments to act on border security issues. In early February, citing authority under the International Emergency Economic Powers Act (IEEPA) (50 U.S.C. §§ 1701 to 1710; for more information, see US Trade Remedies and Other Import Relief Measures on Practical Law), President Trump issued executive orders imposing a 25% tariff on products from Canada and Mexico, except for energy or energy resources from Canada, for which the tariff is 10%.

In response, Canada announced its intention to impose a 25% tariff on $155 billion worth of US goods, starting with tariffs on $30 billion worth of goods effective February 4, 2025, and tariffs on an additional list of US goods worth $125 billion after a 21-day comment period.

These US tariffs and the Canadian retaliatory measures were paused for one month following steps the Trump administration claims Canada and Mexico took to alleviate the illegal migration and illicit drug crisis.

President Trump also:

Strategic Competition

Citing authority under IEEPA, President Trump also issued an EO imposing a 10% tariff on products from China. In response, China announced:

China also indicated that it will file a dispute with the World Trade Organization (WTO).

(For more on these and other tariffs imposed during the second Trump administration, including the de minimis exemption, see Key Developments Under the Trump Administration Regarding Imports and Tariffs: 2025 Tracker on Practical Law.)

Other Issues

It is quite easy to envisage other grievances that President Trump could link to US trade policy. He is a fervent critic of the failure of other NATO members to meet commitments to devote at least 2% of their GDP to defense spending — a commitment that NATO’s new Secretary General, Mark Rutte, has said should increase to at least 3%.

Foreign Government Response

The joining of trade policy to arguably unrelated issues creates dilemmas for foreign governments in how to respond. The natural inclination, as was the case during the first Trump administration, is to retaliate with countervailing tariffs on US imports, and many governments have either done or threatened to do so. However, this retaliation will likely not address the underlying concerns that led the US government to impose tariffs in the first instance.

Moreover, there is the risk that responding to US threats (for example, by increasing defense spending or enhancing border security) may:

Governments around the world will be weighing up the merits of different forms of response, and investors will largely be caught in the middle (for more information, see What Investors Can Do below).

Economic Consequences of Trade Wars

Opinions differ on the full effect of President Trump’s tariff policies, but there is little doubt that they will have global economic implications. Even if tariffs have President Trump’s desired effect of moving manufacturing activity back to the US, there will be negative consequences for the countries losing that investment.

However, a bigger risk is that spiraling protectionism, through a continuing process of response and counter-response, suppresses overall global trade flows and yields national economies that become less competitive and innovative behind protectionist barriers. On February 6, 2025, Agustín Carstens, General Manager of the Bank for International Settlements, raised concerns about the impact of policy uncertainty and noted that “[u]ncertainty itself is likely to weigh on growth. Firms will postpone investment.”

Views also differ on whether tariffs could resuscitate inflation in the US. Prices may rise in the US as the costs of the tariffs are passed to customers or fewer products are imported from the affected countries. This is especially significant following President Trump’s February 13, 2025 memorandum to review the US’s trade relationships and impose reciprocal tariffs on all US trading partners. Currently, all those arguments remain hypothetical and will only be tested when policies take effect.

This risk of global economic disruption occurs as people around the world continue to cite economic issues as their principal worries. As discussed above, economic uncertainty was a major contributor to the considerable electoral shifts occurring last year, including Trump’s own re-election (see The Year of Elections: Anti-Incumbency and Populism above).

Therefore, further economic volatility risks yielding more political upheaval in countries seeking to manage the effects of this economic instability. To be fair, President Trump’s concern is to promote American interests, rather than those of other countries, but any global economic and consequential political volatility will still impact investors operating internationally.

Resource Nationalism and Non-Tariff Protectionism

President Trump is a vocal advocate for rebalancing trade relationships, but he is not the only political leader, in the US or elsewhere, to take that approach. Others include:

The common theme of these measures is that they were explicitly aimed at protecting domestic producers of relevant goods.

There is even more momentum in favor of non-tariff protectionism. To some degree, these measures still had appeal even when governments relentlessly pursued globalization and, as such, investors are more than familiar with the associated risks. Governments have often engaged in resource nationalism in efforts to retain greater shares of the revenue from national resource industries.

Governments have also always used tax incentives and subsidies to attract or maintain domestic capacity in strategic or economically important industries. However, they are increasingly using these same policies to restrict foreign investment in certain areas with national security concerns.

As international trade tensions rise and economic uncertainty provides some of the political impetus for protectionism, investors may see increased use of these non-tariff tools, particularly where they overlap with national security concerns.

Nationalization and Expropriation

Nationalization and expropriation of assets is one of the most existential risks investors can face, but recent cases of these actions are comparatively rare (except as it relates to natural resources). It is worthwhile noting that any nationalization or expropriation activity by foreign governments affecting US investors could serve as another point of friction with the Trump administration, with potential broader consequences for bilateral trade and investment relationships.

Natural resources are often subject to heightened risk of nationalization and expropriation. In recent years, the Mexican government has made concerted efforts to take control of the country’s lithium industry. These efforts are the subject of a legal challenge, with the Chinese mining company, Ganfeng, bringing an arbitration claim in 2024 over the Mexican government’s cancellation of some of its lithium mining concessions.

Chile has also placed its lithium industry under greater government control and is seeking new private investors with which to partner under this revised legal framework. The degree to which investors can be found will shed light on how willing they are to operate in more constrained circumstances.

(For more on expropriation, see Expropriation in International Investment Law and Protecting Overseas Investments: What Are the Options? on Practical Law.)

Bilateral and Multilateral Investment and Taxation Treaties

The network of bilateral and multilateral investment and taxation treaties that has evolved over decades provides investors with considerable certainty and risk mitigation. However, these treaties are not without their political critics. Certain governments and non-governmental organizations have questioned whether bilateral investment treaties favor multinational corporations over sovereign governments. In fact, during the past decade, governments in countries such as India, South Africa, and Indonesia have terminated existing bilateral investment treaties and renegotiated them on more favorable terms.

Similarly, multilateral taxation treaties may also receive more political scrutiny in the coming year. On Inauguration Day, President Trump issued a memorandum withdrawing the US from any commitments previously made under the Organisation for Economic Co-operation and Development’s (OECD’s) Global Tax Deal, which set a minimum corporate tax rate of 15% for large multinational companies operating across 136 signatory countries. The Trump administration also threatened in the memorandum to implement retaliatory measures against governments enacting tax rules or exercising them in ways that are “extraterritorial or disproportionately affect American companies.”

Strategic Competition and Cross-Border Investment: The Further Weaponization of Capital

Much as the past decade has been characterized by widespread political shifts away from globalization, it has also witnessed more intensive strategic competition between countries. In some cases, this has escalated into open conflict, although, in other cases, this conflict has been confined to economic and political rivalry. For investors, the continued propensity of governments to weaponize trade and capital flows for national security advantages brings its own risks.

The situation is further complicated by the multiplicity of areas in which national security overlaps with protectionism and economic nationalism. At heart, national security serves as a potent justification for many forms of government intervention in economic activity.

This section considers some of these areas of overlap and what recent developments mean for investors assessing their risk exposures.

Foreign Investment Review Laws

Government oversight of inbound direct investment is one of the most prevalent areas in which national security concerns impact the regulatory framework affecting cross-border economic activity. Many governments in recent years have either acquired powers to review and restrict inbound investment on national security grounds or seen these remits expand further.

These mechanisms received renewed attention in late 2024, when then-President Biden blocked the proposed acquisition of US Steel by Nippon Steel of Japan following an investigation into the transaction by the Committee on Foreign Investment in the United States (CFIUS). In some ways, this decision was no surprise because then-President Biden, President Trump, and then-Vice President Kamala Harris had all expressed opposition to the proposed acquisition during the 2024 election campaign. However, the decision also speaks to the potential of CFIUS reviews or equivalent processes elsewhere to move beyond the strictest interpretations of national security risk because, in this case, the proposed acquirer was headquartered in a critical US ally.

Beyond the US, an important indication of the future direction of these issues will come from the EU in 2025, when various bodies, including the European Parliament, will be seeking a consensus on the scope of similar EU-wide foreign investment review laws coming into force, including the breadth of the list of industries deemed critical to national security. The risk globally is that these processes remain highly opaque and subject to politicization, with the effect of creating more uncertainty and hesitancy for cross-border investors.

Export Controls and Export Bans

Measures to restrict or completely ban exports of strategic resources or goods are an area in which national security concerns increasingly impact global trade flows. In December 2024, the Biden administration banned exports to 140 designated Chinese companies of certain semiconductor manufacturing equipment and related software, together with advanced memory chips and other machinery involved in their manufacture (for more information, see Export Regulations: EAR, ITAR, and FTR on Practical Law). China responded by barring all exports of antimony, gallium, and germanium to the US. These minerals are critical to the production of semiconductors and various defense-related technologies, but this was the first time that China singled out the US as the subject of an export ban.

Even though these reciprocal export bans have particularly affected US-China trade, they also have more global application. In his final days in office, then-President Biden signed an executive order limiting unrestricted exports of advance AI chips to only 18 designated countries that are close allies of the US, including Australia, Canada, France, Germany, Japan, and the UK (90 Fed. Reg. 4544 (Jan. 15, 2025)). This prompted accusations that the US is using national security justifications to protect its own AI industry and that restrictions on exports of relevant chips could limit data center development in countries that are still allied to the US, but not included on that very small list of recipients of unrestricted exports.

President Trump has promised to deregulate AI. His administration may expand the list of countries on the unrestricted list given concerns that restrictions on US exports of AI chips may lead some countries to align more closely with China on AI development (for more information, see Developments in US AI Law and Regulation: 2025 Tracker on Practical Law).

Industrial Strategy

Various geopolitical events are causing governments to re-evaluate the exposure of their economies to global conflict. There are several key areas of concern, including:

This is leading to a resurgence of interest in national industrial strategy, and many governments are adopting a more activist approach to deal with perceived strategic economic vulnerabilities. With no signs of any immediate calming in the geopolitical environment, these efforts will almost certainly continue in 2025 and beyond with the introduction of new regulations and restrictions.

However, this also creates opportunity for investors seeking to pivot to sectors deemed strategically important as governments seek to boost domestic capacity or favor domestic companies over foreign investors whose own interests are subject to greater scrutiny. The key for both investors and governments will be balancing the need to address vulnerabilities against the need to ensure economics remain competitive and innovative.

A World in Conflict: Uncertainty and Resolution

In 2024, the world continued to experience a level and breadth of conflict not seen in decades as major wars persisted in Ukraine and the Middle East. Both conflicts continued to be major sources of economic disruption as well, particularly to global energy markets. There are indications that 2025 may see both conflicts moving to some sort of pause, but wars are inherently unpredictable and, even if truces are reached, there is no guarantee that they will hold or that new flashpoints will not emerge in other parts of the world.

The Middle East

Throughout 2024, the Israel-Hamas war appeared at risk of escalating into a broader conflict enveloping the entire Middle East. Houthi rebels in Yemen continued to attack shipping transiting the Red Sea. In April 2024, Iran and its various proxies launched drone and missile attacks on Israel. Israel then retaliated by striking Iranian military facilities later that month. Further escalation culminated in an Israeli invasion of southern Lebanon and Iranian attacks on Israel, followed by Israeli retaliation on Iranian targets.

Late 2024 saw efforts at de-escalation. Then, in January 2025, Israel and Hamas reached an agreement for the release of several Israeli hostages taken in the October 7, 2023 attacks in return for Israel releasing Hamas militants and other Palestinian prisoners. A ceasefire in Gaza was also reached. Both agreements remain fragile and susceptible to violation or collapse, with the potential for a broader regional conflict to emerge once again.

There is also speculation that President Trump may increase pressure on Iran, particularly by targeting its economy and, more specifically, Iranian energy exports. Nevertheless, even with a long-standing adversary of the US such as Iran, Trump’s views can be unpredictable. In comments he made on social media in early February, Trump indicated that he would be prepared to open new negotiations with Iran on its nuclear weapons program, even as he signed a National Security Presidential Memorandum instructing US government departments to restore maximum pressure on the Iranian government.

Russia–Ukraine War

As 2025 began, there were signs that the Russia-Ukraine war was approaching a new phase as it entered its fourth year. Both during the 2024 election campaign and since his inauguration, President Trump has called for negotiations between the warring countries. In a sign that the mood may also be shifting within Ukraine, President Volodymyr Zelenskiy has stated that Ukraine would be prepared to make territorial concessions to end the war, provided it received certain security guarantees, particularly from the US. This reflects shifting public opinion in Ukraine, where support for continuing the war has fallen considerably and where most Ukrainians now support some form of negotiated settlement.

This was followed in February 2025 by President Trump calling for the US to open direct negotiations with Russia over the fate of Ukraine, causing consternation with the Ukrainian government and many of the US’s European allies. At this stage, any settlement is hypothetical and subject to a range of variables that could yet prevent it from being reached. Several factors bear close attention when assessing the prospects for the war to end. They are as follows:

Other Flashpoints and Vulnerabilities

Having considered the world’s two current major conflict zones, it is worthwhile assessing other potential flashpoints.

Taiwan

The prospects of a conflict over Taiwan remain high on most analyses of potential future geopolitical flashpoints. As noted above, during last year’s presidential and legislative elections in Taiwan, there were concerns about how China would react (see Taiwan Elections above). The fact that Taiwan’s governing party won the presidency while losing control of the legislature may have helped to dull the rhetoric coming from Beijing in the weeks following the election given that no single party will be able to alter Taiwan’s relations with China.

Nevertheless, there are indications that the Chinese supreme leader Xi Jinping wants to see the Taiwan question resolved, with US intelligence reports stating that Xi has ordered the Chinese military to be ready to take decisive action on the issue, if necessary, by 2027. In the interim, China may still decide that it wants to demonstrate greater assertiveness on the issue through actions such as staging military exercises in the Taiwan Strait, which would have consequential effects on regional and global trade and economics.

Panama

There has been a renewed focus on the US relationship with Panama against a backdrop of historic US military intervention in that country. This is linked, in part, to President Trump’s repeated comments about the US needing to secure control of the Panama Canal. These concerns are rooted in US allegations that the terms on which it ceded control of the Panama Canal to Panama have been violated and that Panama is falling under the increasing influence of China following the Panamanian government’s surprise decision to shift diplomatic recognition from Taiwan to China in 2017.

Panama also figures into President Trump’s focus on immigration issues given that administration officials have spoken of the need for the Panamanian government to close the Darien Gap, a route used by migrants from Central and South America eventually seeking to travel north to the US.

Of all the various comments Trump has made about territorial acquisitions in Canada, Greenland, and elsewhere, those relating to the Panama Canal are perhaps the most significant to US strategic interests. While the Panamanian government has shown a propensity to try to assuage US concerns, the path to resolution is not clear. Following US Secretary of State Marco Rubio’s visit to Panama in early February, administration officials said that the US had secured a deal for US government vessels to transit the canal without paying fees, but this was denied by the Panama Canal Authority. Any moves by Panama to defy the US could change the strategic position further while also indirectly bringing US and Chinese interests into conflict.

What Investors Can Do

With geopolitical risks presenting greater challenges for cross-border investors, their assessment and potential mitigation are more important. There is no single strategy that can be adopted for geopolitical risk assessment. (For more information, see Protecting Overseas Investments: What Are the Options? and Geopolitical Risk Identification, Analysis, and Management Toolkit on Practical Law.)