Investing.com – BCA Research has identified three geopolitical trends that it expects to emerge in 2025, driven by several key factors such as the policies expected under Donald Trump's second term, China's economic moves, and rising tensions in the Middle East's strategic recalibration on the international stage. Global stage.
Exhibit 1: “Trump cuts taxes, increases tariffs”
BCA expects the US Congress to approve the tax cuts by the end of 2025, contributing to a fiscal boost of about 0.9% of GDP in 2026. The move is intended to stimulate the domestic economy but will coincide with President Trump starting a global trade war. At the heart of this conflict will be tariffs targeting major trading partners, with China bearing the brunt of these measures.
The BCA notes that “Trump claims higher taxes on imports will cover the difference,” but highlights that such tariffs could have unintended consequences.
Higher import taxes could reduce household income by 2.9% to 6.3%, offsetting the benefits of the tax cuts. Moreover, the uncertainty caused by these trade policies can significantly impact business investment, especially in sectors that rely on global supply chains.
The report stresses that tariffs are unlikely to fully fund ambitious tax reform. Instead, the BCA expects the fiscal deficit to increase and pressure on domestic consumers and businesses to increase.
Opinion No. 2: China will boost spending
In response to the US tariffs, China is expected to face significant domestic stimulus measures while strengthening its trade ties outside the US. According to the BCA, “Xi Jinping will be able to blame Trump for the painful consequences of restructuring at home,” using external pressure. To justify economic reforms and strengthen domestic support.
Beijing's strategy is likely to include targeted fiscal easing and efforts to reduce dependence on US demand. While these measures are expected to provide relief in the near term, the economic cooperation agreement indicates that China will step back from deploying the “fiscal bazooka,” providing a significant incentive to confront a potential global recession. Instead, China will focus on long-term strategies, such as expanding trade with non-American partners and strengthening its manufacturing sector.
At the same time, the report highlights an uptick in China's military and strategic activities, including potential conflicts in East Asia and increased pressure on Taiwan. These moves are part of a broader strategy to assert geopolitical influence amid rising global tensions.
“Investors cannot predict random military incidents or base their portfolios on them – but they can create early warning systems to detect if a negative trend is starting to develop,” notes BCA.
Exhibit 3: Geopolitical risk shifts from Russia to Iran
Finally, while the Ukraine war is expected to reach its peak and move toward a ceasefire in 2025, BCA expects geopolitical risks to shift to the Middle East, especially the escalating conflict between Israel and Iran. The report estimates the probability of a military escalation at 75%, driven by Iran's nuclear ambitions and the repercussions of US sanctions.
The BCA notes the deteriorating security landscape in the region, as Iran is likely to leverage its proxy networks and air defense systems to deter attacks. However, Israel, seeing a rare strategic opportunity, may move decisively to disrupt Iran's nuclear program. “The IDF may never have a better chance,” the report stated.
Trump's return to office could inflame tensions further. His administration's implementation of “maximum pressure” sanctions and the potential realignment of US foreign policy are expected to exacerbate volatility in the region.
