Hello, everyone. Good morning, good afternoon to wherever you are. Welcome to this month's webinar topic. My name is Nick. I'm a director with our Onyx Group, and I'll be your host and moderating questions throughout the event today. As we come to the end of the year, it's a good time to look ahead to many key topics in 2025. Today's session is our 2025 global outlook. We'll be analyzing the essential areas to watch for supply chain professionals in the next year, with the backdrop of cost pressures, geopolitical uncertainty, and a number of new policy areas governments are expected to explore. Businesses like yourselves need to prepare for a number of changes in global trade. So our team will be zooming in on several key geographies, including the U.S., Europe, China, Mexico, Vietnam, India, and elsewhere, to lay out the various policy factors and trade tactics to watch next year. We've also witnessed a number of geopolitical shocks to global trade, some of which still persist. So we will review the full state of things and impacts to consider going forward. So a lot to cover here today. BEUe we get going, a few administrative details to cover. So we are recording this session. We have a full hour of content ahead. If you have questions throughout the event, please use the Q&A box. We'll be monitoring questions. I also have someone else with me helping to monitor. So we'll answer those questions throughout, and we'll try to leave some time at the end to answer those out loud as well. Just go ahead and send your questions in whenever you have one. We'll be watching that throughout the session. If you want to get a copy of the recording and also the presentation deck, look for a survey within about an hour or two after the webinar ends, and then filling out that survey, well, number one, it gives us great feedback on how to structure these events, but two, it gives you a link to a page where you can download the deck as well as watch the recording later. Look for that a little bit after the event today. Also, something to think about and kind of pay attention to is our publications that we distribute. We put out a lot of stuff in different venues, some of which goes out via LinkedIn. It's more short-form commentary. But also on LinkedIn, it links to our longer-form pieces, which we often put on our Vantage Point blog. You can see there on the right. So both of those you can sign up for. You can follow us on LinkedIn, and you won't miss anything. And then you can actually subscribe directly to the Vantage Point blog. We send out a monthly newsletter. There's one going out next week. And it's a great way to see what were the different blogs we published that previous month, some research decks, analysis that we do looking forward, so what webinar we have or other events coming up in the next month or so. So it's a great way to keep up with our publications. All right. Also, a little bit about Onyx. Some of you may be new, and this might be your first time hearing from us. So, who we are? Well, we're a division of Expeditors, and we're around here to help companies build adaptable and resilient supply chains. So, we focus on a number of geopolitical, economic areas, operational disruptors, and we offer advisory engagements, so ongoing relationships with clients who need someone to be their partner throughout the year. And then, we also, in many cases, we have clients who have very specific questions, things we're trying to solve. They don't have the resources internally, the knowledge internally, and so they're looking for a partner to help answer key questions. And so, we offer those in project-based work as well. So, that's a bit about us. And then, we have different service lines that serve people in different areas. Often, we talk to people in transportation and logistics, trade and compliance, then even sourcing and procurement, and then overall strategy, planning, and risk management. So some of the service lines we have are monitoring in nature. That's more of that ongoing advisory engagement where you're looking to be alerted, sort of kept informed of different things happening. It might be shocks. It might be new regulations, say, on the trade and compliance side. And then we also offer very quantitative-based things, such as our Total Acquisition Cost analysis helps with purchasing decisions. And then we do deep-dive risk analysis on countries. And those are often those sort of individual scoped-out projects. So let us know if there's anything of interest there that resonates, especially as you're watching the rest of the content today. Okay. So with that, I'd like to introduce we have two speakers today. First of all, we have Fernanda Kroup, Vice President, Head of Onyx Strategic Insights. Fernanda has more than 20 years of experience in management consulting, geopolitics, and macroeconomic analysis. She has lived and worked in four continents, serving clients in technology, heavy industries, basic metals, financial services, retail, and consumer goods. Also, Adam Karson, Chief Economist for Onyx Strategic Insights, is our second speaker today. And Adam has more than 20 years of experience as an economic advisor to global leaders across a range of industries. He has extensive experience in the U.S., Europe, and Middle East. Adam most recently worked at Chevron as a senior economist before coming to Onyx, where he is responsible for our macroeconomic analysis and forecasting. So Adam will actually kick us off today. And so at this point, I will turn it over to you, Adam. All right. Thanks, Nick. And thanks, everyone, for joining today. Welcome to this discussion. And I'll just echo what Nick said. We really encourage Q&A here. So please feel free to post questions in the chat, and we'll try to get to as many of those as possible. As you can imagine, we have a lot of content to go through, but I want to kind of start by setting the stage a little bit, kind of a 30,000-foot view of how we're thinking about 2025. If you recall, we referred to 2024 as the year of elections, and 2025 is really the year of policy. So we're going to be living with newly elected officials and the policies that they bring to the table. Now, one of the common themes for 2025 across all geographies and through various lenses through which to look at the world is that the level of uncertainty is quite enormous, right, so we're facing both economic uncertainty with some key economies shifting gears in terms of their growth trajectories, also looking at particular sourcing markets with cost pressures ebbing and flowing. We're looking at global trade and a looming trade war, the rise of tariffs, and potential retaliation amongst major markets, and then we have global geopolitics with sort of the pre-existing hotspots from the past couple of years moving in an escalatory situation in some cases, and then we have new hotspots popping up. All of these things pose uncertainty. Our job really is to help try to reduce the number of variables to a manageable level and give you some guideposts for how to think about the next year. But the other common theme, in addition to uncertainty, is that many of these issues on the table are pointing towards rising cost pressures. And we'll walk through each, both macro, global trade, and geopolitics, how those cost pressures are likely to kind of manifest themselves. But with that kind of context and background, let's jump into the macro component of this. So I'll start off by talking about the macro backdrop and then hand off to Fernanda to talk about global trade and geopolitics. But let's start at the top line, where we see the world economy heading. With this level of uncertainty, our approach to forecasting 2025 has been to think about sort of the business-as-usual base case. So if we assume current policies persist throughout 2025, where would the world economy end up? The good thing here is that the world economy would do pretty well and actually, at a global level, accelerate even a little bit. Now, the twist here is that the composition of growth is changing a little bit. We're moving away from the U.S. consumer driving growth as strongly as it did in 2023 and 2024. We're moving towards more of a balanced kind of story. China's decelerating a little bit, but Europe and Japan are doing a little bit better. Emerging markets are doing well. India remains the fastest-growing large economy in the world. So the composition changes a little bit, but the top line is pretty much okay, right? The things to watch out for are the U.S. consumer decelerating in the face of inflation and interest rates. We think that deceleration will be moderate, but there's uncertainty around it. Another big wildcard is how China manages a trilemma of problems. One, it's trying to reorient its economy to new growth drivers around domestic consumption. It's also trying to deleverage the property sector. And it's also trying to fight off external pressures from the U.S. with regards to trade policy. Any one of those problems would be challenging, but trying to do all three at the same time poses some risks, some downside risks to the Chinese outlook. And then you have Europe, where although it's looking like it'll improve a little bit from last year, that's off of a low base. Europe's still facing some pretty big structural obstacles, including a long-term manufacturing recession in Germany. Unfortunately, we don't see an end to that anytime in the near future. I don't want the sort of those gloomy kind of things to outweigh the overall picture, which is the global economy is actually doing relatively well. The flip side to that growth story is if we look at inflation and interest rates, on the next slide, we have a view of advanced markets. We can switch to the next slide. There we go. Thanks. If we think about advanced markets and where the inflation story is going, it's pretty much in line with what we've been saying for the past 18 months or so. Inflation rates in the U.S. and Europe are normalizing, and we're on that path. We just had some data come out in the U.S. yesterday, and it showed a little bit of choppiness in the data, but some of the key underlying things on services inflation are pointing in the right direction. So we're still relatively confident in this outlook for inflation to be normalizing. Now, that's important for a couple of different reasons. One is it gives a chance for real incomes to grow. And part of the positive outlook, or more positive outlook in Europe for next year, is that we expect real incomes to contribute to consumer spending. So we have inflation coming down in Europe faster than in the U.S. A lot of that has to do with some of the weakness in the manufacturing sector. But real incomes are going to improve there as they will in the U.S. also. The second reason inflation coming down is important is it gives room for central banks to normalize interest rates. And again, we're kind of holding our outlook for interest rates relatively constant from last year. And we suspect that the Federal Reserve will bring the Fed funds rate down to right around 3.5%. The ECB will bring rates down to closer to 2%, maybe a little bit below that by the end of 2025. That gets them pretty close to the long-term neutral rates in each region. In the U.S., we think that long-term neutral rate is around 3%. In practical terms, that means mortgage rates in the fives, auto loan rates in the sixes, investment-grade corporate debt somewhere in that range as well, 6% or so. The long story short, rates are falling. They're going to be well off their peak by the time we get through next year. But we're still in this higher-for-longer kind of environment. We're not going to go back to the zero-interest rate environment that we were used to pre-COVID. Now, that's the inflation story more on the advanced market side. When we look at price pressures on the sourcing side of the equation, we're seeing some very similar patterns. For the most part, inflation rates around the world are coming down. And that's good news because it relieves some of the pressure on manufacturing costs. But there are a couple of important caveats that we want to point out here. And the two most important are Vietnam and Mexico, where cost pressures on a relative basis are higher than their peers in their region. And this is for a couple of different reasons, but one of the big ones is that Vietnam and Mexico have been two of the primary hotspots of foreign investment. And sort of in the China de-risking paradigm, those two markets have received a lot of attention and a lot of investment inflows. And so you're seeing capacity constrained in many cases. You're also seeing labor costs and labor market pressures push upward on prices overall. So when you think about Vietnam running at about 4% producer price inflation, that's about one to two percentage points higher than its peers. Mexico running at about 3.5%, which is about a full percentage point higher than its peers. In any given year, that difference might not make or break you, but we expect that gap to be cumulative or sort of persistent over several years. The cumulative effect will erode cost competitiveness in those markets. That's something to really pay attention to as we move into next year to see how those two markets in particular deal with capacity issues and can they catch up to the pressures that investment is placing on their markets. Then when we think about sort of manufacturing costs in general, we've taken a global look at costs relative to the U.S., both this year and next year. The good news here, I guess, is that relative to the U.S., at least, cost pressures are generally falling. Just to orient yourself on this chart, the X-axis is our estimate for relative manufacturing costs in 2024. On the Y-axis is our forecast for 2025. Countries in that blue region, their relative costs are falling in 2025 relative to 2024. This is for a couple of different reasons. On the upside, you see pressure from producer price inflation. We've already talked about Vietnam and Mexico. Then the U.S. is seeing higher wage pressures on a productivity-adjusted basis. Also, the strength of the dollar is going to offset any kind of producer price inflation that we see in many emerging markets. It's really the combination of rising wages and the strong dollar in the U.S. will keep U.S. prices relatively high. That's an important takeaway when we think about reshoring, nearshoring, and the potential impacts of U.S. trade policy. Those policies that are aimed at increasing reshoring are sort of pushing against this. The microeconomics might not be necessarily in favor of that. Now, the other aspect of cost to consider as we move into next year is what's going to happen with logistics. Now, we're not forecasting freight rates, but we do look at capacity utilization and constraints in both air and ocean markets. And we have a bit of slightly different stories when we think about air and ocean. But overall, we think that on the air side, really demand by e-commerce is going to continue to drive tightness. And then on the ocean markets, it's a little less clear. We think that on balance, the market will kind of move sideways in terms of a capacity utilization lens. But on the air market, I want to highlight a couple of things. First, on the demand side, we do expect to see demand relatively stronger, marginally stronger next year, sort of at the foundational level, driven by overall GDP and trade growth, especially in Europe and Asia. But e-commerce is the real story here. We see e-commerce growth continuing to put tightening pressure on air cargo markets, and that's not necessarily going away anytime soon. Now, the caveat there is what would happen, what's going to happen with U.S. policy on the de minimis rule and EU r egulations around Chinese e-commerce platforms. That could potentially move the needle a little bit, but you would need to see some pretty significant changes there for the market fundamentals to be shifted. Because on the supply side, we see some factors that are pointing in a tightening direction as well. You have a shortage of global aircraft. You have carriers prioritizing passenger over cargo capacity. Also, the Red Sea closure plays into this, of course, and then you have potential for port strikes as we move into early 2025, so all those things are kind of pointing into a tightening situation as well. Counterbalance that with the ocean market, where demand is growing, but not as fast as it did in 2024. So only a little bit of kind of modest pressure from the demand side. And compare that with capacity, which is going to grow at a faster rate than demand. So again, capacity is growing slower than it did in 2024, but faster than demand. So that would potentially lead you to think that there'd be some tightening, or sorry, some loosening in the ocean market. But I think there's a high enough level of uncertainty in how carriers are going to manage that excess capacity that it's harder to make a definitive call on whether the market's going to be tightening or loosening. We kind of think on balance, the carriers will do a pretty good job of managing that excess capacity. And therefore, we'll kind of see this kind of more of a sideways movement on average in the ocean market. Now, what I'd like to wrap up with and then hand over to Fernanda is I started off by talking about uncertainty, and then I've presented to you kind of a business-as-usual baseline. Now, there are a million and one different scenarios that we could run. I feel like we've run probably half a million. And we could present many of those here. This is one representation of trade policy as if it were implemented as stated in the U.S. election campaign trail. So if we were to see 60% tariffs on China, 10% tariffs on the rest of the world, and a relatively equivalent retaliation by other countries, sort of what would the world look like at the end of Trump's administration? Where we would be is the U.S. economy would be about a full percentage point smaller. Inflation would be nearly a percentage point higher. Consumer spending would see some serious drag. Investment spending would see even a bigger drag than that. I would also see a reduction in overall trade, both imports and exports. So the trade balance wouldn't necessarily be affected that much, but overall trade would be in sort of a recessionary slump. What's not shown here is that the composition of trade and the bilateral trade movements between countries would also change pretty significantly. Now, I just want to highlight this as this is one potential way the world could go, just to give you a sense of magnitude, order of magnitude of the level of uncertainty out there. There are other scenarios that I think we should be paying attention to, iterations of these tariff and trade policies, but also we really want to pay attention to the Chinese economy and whether or not stimulus can put a floor under growth there, and then segueing into what Fernanda is going to talk about are the various risks on the geopolitical front and how those could in particular affect oil prices and the other prices for other raw commodities, so I'll leave it there. I hope you guys have some questions that you post in the chat, but I'd really love to hand over to Fernanda to talk about trade and geopolitics now. Thanks, Adam. Before we turn there, if you can come back, Adam, for a second here, I see just a few quick questions on the outlook for France, Germany, and Canada. Anything that you can share in a few minutes? I think Germany in particular, what impact can that have on sourcing from German suppliers? Yeah, Germany in particular is facing some real challenges on the manufacturing side. The structural issues that they've been battling now for several years, we don't think those are going away anytime soon. So aging population, high energy costs, other factors that are keeping manufacturing sort of in the doldrums in Germany will continue into next year. Now, what that means is that if you're selling into those markets, it's not a rosy picture. Sourcing from those markets, sourcing from Europe may be one opportunity where the cost pressures are coming down faster than other markets. So from a sourcing perspective, some of that overall economic weakness might not be the worst thing in the world and could present some opportunities in Europe. The political uncertainty in France, I think from my perspective, the jury is still a little bit out on how to factor that into the overall outlook, at least from a sourcing perspective. France's economy is not doing great. It's doing a little, I think it will do a little bit better than Germany and maybe sort of around the average for the EU for next year. But I think the political situation, I think we'll have to wait and kind of see if that kind of manifests itself in any kind of major shift in policy. We're seeing a lot of other questions kind of stream in here. I can take some of these now, but also can kind of pause and wait till the end as well. Yeah, let's pause a little bit here. I see a couple of questions on U.S. foreign policy and also Ukraine, Israel, Taiwan. We'll deal with those in the next couple of sections. Sure. Great. Thanks, Adam. Yep. All right. So let's turn to global trade. And then we'll talk a little bit about those geopolitical shocks that I see folks asking about. And then at the end, both Adam and I will answer any other questions that we haven't so far. Now, if I turn to global trade, the summary here is that if we were to look at the U.S. and what the incoming Trump administration has already talked about, we see a lot of nuance coming in, right? From a very clear-cut discussion of very simple, straightforward 60% on China, 10%-20% on others. Now, a lot more nuance coming in. And that might point to a patchwork approach, also with potential for negotiation. I'll get to that in a second. A lot of domestic focus, though, on taxes and potential rollback of Biden-era sustainability issues and measures. Mexico, a lot more interested in going all in and upstream on nearshoring and actually putting it a little bit on a collision course with China and Chinese imports. The EU prioritizing U.S. market access over that, but really with a red line there pointing towards retaliation depending on the strength of U.S. action. China ready to retaliate. It has already retaliated. And this push to diversify away from the United States and Europe continuing to emerging markets. Southeast Asia, also much like Mexico, really focusing on being a de-risking alternative and improving its infrastructure. And here, much more of a negotiating approach to this as opposed to retaliation, but also a careful balancing act between China and the United States as its top trade partners. And then India, right? Manufacturing is a priority. We'll look into that. But still no answer on red tape, really. A lot of investments in infrastructure, but the red tape aspect, especially on customs, still no answer there. And still a little bit of a focus on India for India. So producing for domestic consumption as opposed to becoming an export base in an alternative to China as well. Now, when it comes to the U.S., here we attempted to provide you with a little bit of a summary of what has been discussed so far in terms of potential future measures, things to pay attention to, right? So on China, 10% initial, potential 20%-60%, removing its PNTR status, meaning having a whole new tariff schedule away from MFN for China. For others, 10%-20% unspecified. But then also, we would love for you to continue to pay attention to other measures that are ongoing from the current administration. Now, the current administration, Democrats in general tend to focus much more on technology and strategic competition. The Trump administration in the past and incoming is much more likely to focus on tariffs and righting sort of trade imbalances, if you will. Now, it doesn't mean that they're exclusively focused on either, right? Everything else continues to run in the background, right? So it's important to think about that. There's a lot of attention being paid to tariffs, but forced labor, de minimis, tech exports, entity lists likely to continue. And then on the industrial policy, sort of more domestic side, tax incentives and certain attempted rollbacks of especially sustainability provisions. But here, I think the important thing for us to think about is how do we know in which direction things are going? And there are some wild cards still here, right, despite the rhetoric. So the intensity and the timeliness of retaliation from others are likely to sway the United States. The timing of tariff increases, is it immediate or is it over time? The nature of those increases, is it temporary or is it permanent? Is it conditional on behavior? So President-elect Trump has already come out saying 25% on Mexico to force a change on the border issue. Now, that points to a nuance, right? And it's that differentiation, right? So for Mexico, we have one track and one set of issues, right? The border in particular, trade diversion with China. Now, with the EU, we have a trading balance. But that's also colored by the Ukraine issue, by NATO, right? By investments in defense and how much money is Europe spending on defense. With China, you have the trading balance, but also the strategic competition. So lots of issues across the board and that point to a more nuanced approach. And so when we think about what to expect, you have a variety of policy tools, right? And these policy tools can be broad-based. They can be immediately implemented. Some of them are untested. We would argue that even if they're untested on the legality, courts are unlikely to insert themselves into a debate of what constitutes national security or not or the powers of the executive branch. And so there's a variety of tools available, and we attempt to give you sort of a summary of what those tools are. But then you have also a variety of tactics being discussed, right? Do you do maximum pressure on China? Do you do a slow ramp-up with others? Do you go for a more protectionist 15% under Section 122? and then in the midst of all this, you have milestones with the budget and tax reform, you have certain priorities from a security and industrial policy standpoint, and then you have Congress, so it is a complex environment. If I were to speculate in the next few weeks, will be key here, I would say that you're much more likely at this point, with the few data points that we have, to see a differentiated approach and a more incremental over time approach. You might have right on day one, something that is designed to show intent and is designed to be sort of a definitive approach in terms of perhaps some immediate action on China, for example. But on the whole, right, you're likely to see a much more incremental and perhaps opening up to negotiations approach by signaling a threat and then waiting for the response. Now, is that something that we can say for sure? No. This is more on the speculative side. But if I were to see already President-elect Trump adding maybe 10% in the beginning, and then we scale it up, his advisors say, "We're ready to do it on day one." And that might be a negotiating tactic, right? But President-elect Trump himself has not necessarily offered one sort of straightforward message: it will be 60% on day one, right? He has sort of tested different approaches, and it's an ongoing dialogue with different countries around the world and seeing what their response could be. China is bent on showing intent to retaliate and a much heavier hand than before, but still interested in negotiating. Now, when it comes to the USMCA, that's sort of a 2025 to 2026 issue here. You have sort of a constellation of interests, right, where you see also the potential for convergence, and that's an interesting thing because the U.S. does want to contain Chinese trade diversion, right, so Chinese imports or exports into Mexico and then from Mexico into the United States. Mexico itself is also interested in moving upstream in manufacturing and curbing imports, so you see an interesting convergence here. Our view today is that there will be significant back and forth and bargaining, but that the agreement will be confirmed. Now, this is not a path to withdraw if there's no confirmation, just to be sure, right? What it means is that the agreement will be on constant review if it's not confirmed. But it is an opportunity to foresee some of the issues and the convergence that there can be between, especially between the U.S. and Mexico. With Canada, you still see a lot of sort of the classic issues around dairy, right, around energy. With Mexico, you still see some of the classic issues around labor standards. But overall, we see a lot more room for negotiation and agreements. Now, the critical issue here for negotiation is rules of origin, particularly for auto. That's been a pain point throughout the years and is likely to continue. But then one unanswered question here is around what to do about Chinese investments in Mexico and in Canada, but in Mexico in particular. For Mexico, that is not a problem necessarily because Mexico wants to move upstream, right, regardless of who's investing. But for the United States, it matters. Now, the USMCA is not an agreement that deals directly with the origin of investments in a particular member state. But it is something that, if I were to speculate, it hasn't been addressed systematically yet, but it's something to keep in mind for the future. For Mexico, though, this going all in matters, right? So investing in creating an industrial corridor, an energy transition, which wasn't the case with the previous administration in Mexico, simplifying, modernizing. Now, these are statements of intent. We need to see what happens here. The issue of a sustained effort to improve and bring to the current levels of demand of its logistics infrastructure. Now, there's a lot of push here to sort of invest in underdeveloped areas that may or may not match where investment is going for nearshoring. And so we're a bit more cautious in terms of optimism on significant improvements to logistics infrastructure. But it does put Mexico a little bit in a collision course with China. Mexico has already upped tariffs on imports specifically for China. China complained, to which Mexico said, "It's not necessarily that we're doing something that you haven't done, right? We're trying to produce as much as we can in any given supply chain. You've done this in the past as well. You don't want to just be an assembly point." And so there's this back and forth, right? But when we look at imports from China, machinery, right, and equipment, and then transportation, auto, right, these are the two most important sectors to pay attention to. With the EU, we do see a lot of scenarios being discussed internally in terms of how best to retaliate to the United States, signaling intent to retaliate, right? But the United States and Europe and the EU in particular share a concern about China being a strategic rival, right? And the EU is likely to continue to look at increasing pressure on China now to protect its own industry. It puts German auto into a collision course, of course, but that strategic imperative continues. And this feeling that China may have overreached in Europe, particularly when it considered parts of Europe or part of the Belt and Road Initiative. Now, if the EU i s targeted, though, by the United States, there will be a retaliation, right? And it will be some sort of measured approach between a tit for tat and a negotiation, right? But it is a question as to how best Europe will manage both the United States and Europe. China, as I said, is ready to retaliate, right? Restricting exports. We've seen that with rare earths. Now, retaliatory tariffs on U.S. imports are less likely to make a splash. But what we hear consistently is that China has taken note of all the 301 exclusions that U.S. industry has asked for as significant pain points for the United States in terms of restricting exports. It is ready to make some concessions and negotiate, so much like Europe likely to adopt a hybrid approach, but much more assertive than before. The idea that China will continue to invest in its export base but also prop up domestic demand, the latter much more than in the past, right? But continuing to pursue strategic emerging industries to protect its industrial base and even the issue of excess capacity. Now, China has been on a collision course, not just with the United States and with Europe, but with other emerging markets as well that have recently adopted measures against Chinese imports. So in some ways, China is becoming a bit more isolated. In other ways, it's becoming its share of global exports has increased. Now, that may point to a high watermark on its participation in global trade. One potential scenario is that China actually starts moving sideways in terms of its importance and weight in global trade. It's important to see that it's not just the United States and Europe that are concerned about Chinese excess capacity or Chinese exports, and so 2025 might as well be a turning point for the relationship that China has with other emerging markets and this idea that they're not just going to take whatever China is offering. For Vietnam in particular, when we look at ASEAN, there will be a lot of focus on infrastructure, right? Power in particular and logistics. Will things change overnight? No. This is a long road towards 2030, but it is top of mind in Vietnam, and not just in Vietnam. Malaysia and Thailand in particular as well, but for Vietnam, the power issue has been a particular pain point. Now, Vietnam and others are incredibly integrated with China, right, and are also responsible for a significant share of U.S. trade deficit. Seeing this, Southeast Asia has always had, or for the longest time, a sort of a balancing approach between the United States and China. Now, pressure to choose sides is increasing and will increase between 2025, 2026, 2027, and you might as well start seeing some alignments there. The Philippines much more clearly on the U.S. side, but China is still its most important trade partner, so a real sort of corner here for them. We do believe that at the end of the day, they'll start making choices, maybe not in 2025, but certainly in 2026 and forward. For Vietnam in particular, this more negotiated approach, making concessions, for example, under its bilateral trade agreement, is a potential option, and then finally for India, as I was saying before, we do see a lot of interest in ramping up domestic production. We still see, as I said before, we don't see a lot of movement on the red tape side, particularly with customs. Then if you look at the importance of domestic consumption versus imports or exports in India, in the Indian economy and its share of global exports, you see how little has moved between 2018 and 2024. It points in the direction of India really focusing much more on its domestic consumption and its domestic market as opposed to becoming a significant export base. Now, this may change, but we haven't seen any policies that point in that direction. It's still very complicated to export from India. Moving on to the geopolitical side, I think perhaps one useful way to start off is to look at the critical geopolitical fault lines that we have today that are active and pointing towards escalation. Now, Russia-Ukraine, Russia seems to have the upper hand, and that gives it an incentive to continue to escalate. Also, questions around the continuation of U.S. support for Ukraine, the level of European support for Ukraine, and that points into the direction of escalation. Now, even if you had a negotiated approach, right, and some settlement starting tomorrow, and let's say for the sake of, as a scenario here, Russia is allowed to keep the areas that it controls in Ukraine and either incorporates it into Russian territory or treats them as autonomous regions, for example, you would still see a continuation of the fundamental tensions between Europe and the EU and Russia and these spheres of influence, right? Russia is extremely concerned about its periphery and creating a buffer between Russia proper and the EU in particular, NATO. That's not going to go away. Those tensions are here to stay, even if you have a negotiated approach on Ukraine. That is the critical issue for the Europeans: national security or regional security. You are likely to continue to see these geopolitical, this particular geopolitical fault line going on over time. That means that disruptions continue to be the norm there. Things that we've kind of grown accustomed to became the new normal. Flights cannot go into Russian airspace. Sanctions on the Russian economy likely continue indefinitely. The South China Sea and China-Taiwan are interlinked. For military action in Taiwan, control of the South China Sea is essential. You are already seeing some points of escalation between China and the Philippines in particular. China, much like Russia, is trying to build a security perimeter around itself, and the South China Sea is critical. Now, some points, are we definitely in escalation mode here? No. But it's pointing into that direction, right? And we'll be firmly in escalation mode if one or more of the parties believes it can win a war. Now, 2025 is sort of a ramp-up point here as China builds its military capabilities. Most security experts point towards 2026, 2027 as a point in time where China is likely to have the military capabilities it needs to control the South China Sea and perhaps resort to military action on Taiwan. A simple accident is not likely to trigger a war. Behind that accident, you need to have somebody who believes they can win a war. Another scenario here for escalation is whether you have a deep economic crisis in China that leads the government to believe that it needs to reverse its fortunes, right? Now, we're not unlikely to see U.S. presence sort of decreasing in the region. The question is, how ready would the United States be to participate in a war, but in the first Trump administration, you already saw military operations rising in the region, and we do see that as likely to remain persistent or even ramp up, right? Particularly when it comes to the Philippines. For the Middle East, we have a different scenario here. Now, we do believe that the current situation in the Red Sea is the normal. It's unlikely to be resolved because the underlying political issues are unresolved. Now, you see action in Syria, so it's escalating, right, but what does that mean for supply chains in particular? Now, the issues around the ocean, right, are already priced in because the Red Sea and Suez Canal is, for the most part, blocked. The next step would be action that involves the Strait of Hormuz, and that impacts the flow of oil, right? In that scenario, right, and a definitive escalation pointed towards Iran, then you're looking at $150 a barrel. Now, nobody wants a war here, especially Iran. Israel is actively trying to have Iran show its hand. And the coalition or the Axis of Resistance seems to be crumbling right now. Is it going to go away? Unlikely. Israel has also taken this opportunity to take out some key military assets in Syria. But the issue around Syria and who controls Syria will be the most important element to watch, right? And how that involves Iran and Russia into this. And I should mention Turkey as well. Now, a little bit of a wrap-up before we turn to questions is, let's think a little bit about beyond 2025. Let me take you a little bit into a question that has been in my mind for a little while now. Is derisking really derisked? When folks move away from China and saying to Southeast Asia, are they really derisking? If I take you back to 1990, particularly in Asia, right? Then fast forward in terms of medium and high-tech merchandise and total exports, you see a definitive change. Also in terms of the participation of Eastern Europe. A lot of production has moved, right? Some of it was a natural movement towards China, but then from China into Southeast Asia and then from Western Europe into Eastern Europe. But if I overlay this with all of those geopolitical fault lines that are particularly active today, Russia and the EU and NATO, the Middle East, India and China, Russia and China, which is a dormant one and sort of a marriage of convenience, but they have been historically regional rivals, North Korea, South China Sea and Taiwan. We see a lot of the global installed manufacturing base moving towards geopolitical hotspots and not away from them, perhaps with the exception of Mexico. That creates a fault. Over time, in the long run, that puts pressure for further de-risking on different companies. And what this means in some ways is if I add to this the fact that global production costs are increasing in no small measure because of demographics, the world is getting older, not just the United States or Japan or Europe, but also emerging markets. Merchandise trade seems to have plateaued as a percentage of global GDP. That points into two directions here that you're already seeing. This pressure to reshore and so bring production back to domestic bases, which means that you have to deal with a lot higher costs, and the one issue here is how much automation then can you add to a particular operation? These seem to be sort of the sort of end games of just where geopolitics and where global demographics are pointing companies towards, and so when you're thinking about long term, what does it mean for us, right? Will we have to derisk again? Maybe. If we do so, what are we going to be looking at? Probably a lot of automation. With that, I'm going to take a pause here and bring Nick back and Adam and see if there are any questions. Yeah, we do have a few questions, and we still have some time for the audience if you have questions to get them in. Maybe we'll start with, there's a question about the Argentina market and what our thoughts are on the potential of a trade agreement with the U.S. I know trade agreements haven't been necessarily pursued as much from the U.S. lately, but any thoughts on that one? Yeah, you got it, Nick. So is it possible? Yes. Is it likely? Not really. This administration is not likely to sign a lot of FTAs, right? If you remember, in the first Trump administration, and I think this is the key data point, a lot was promised in terms of a trade agreement between the United States and the U.K., right? Particularly seen as sort of a convergence of minds between Trump and Boris Johnson. And now that we're out of the EU, right, for the U.K., the United States will come and reward our effort, right? And that hasn't happened at all. So is it possible? Yes. Is it likely? Not really. Yeah. Okay. Maybe sticking sort of with South America, there's a question about Mercosur and how it can affect EU-LATAM growth. I know there was recently an agreement between EU and LATAM, so maybe an exception to new trade agreements there. Do we foresee that to support EU growth? And they ask about France and Germany in particular. And it's probably early days there still, but any initial thoughts on that new trade agreement? Yeah. So that new trade agreement soon needs to be ratified by EU members, right? And that's a high bar. So that agreement has been under negotiation for close to 30 years. Is it a milestone? Yes. Can it help Europe diversify and open new markets? Yes. But if you look at the totality of EU trade agreements and trade negotiations, they have stalled, right? And it's unclear to me whether that agreement will ever be completely ratified. So that to me is a high bar. You look at other agreements and other negotiations that the EU has, and it has an ambitious agenda, all stalled, right? Save for a few exceptions. So the EU s eems to be much more concentrated on saving and preserving the EU project itself, the European project, and then its own sort of regional security, especially vis-à-vis Russia and China. So much more inwards looking. I'm not sure whether the agreement will ever come into force, but I hope so. If it does, it will be a good way for it won't be a saving grace, but it will be a good step towards the EU opening up new markets. Okay. Great. Do you see any other questions, either of you, that you'd like to answer? I can keep surfing some up, but let me know if you see any that kind of strike you that you want to go to. There's a question on scenarios on Russia, like larger global conflict on Russia and China and Taiwan, and whether we've, I guess, the way they run scenarios or modeled that out. I mean, we've certainly thought through the scenarios in a lot of detail. We haven't modeled them specifically. I think in the former, with regards to Russia, we have an idea of what the channels of those impacts would be through impacts to regional GDP, in particular Europe, big impacts on commodity prices and energy prices, impacts through trade channels and financial markets. Certainly, we would see a global impact with much more acute pain in Europe in particular. The question around China and Taiwan and what that scenario looks like, much bigger impacts there. I mean, some other very reputable groups have modeled out those scenarios and come up with some pretty big numbers to the impact of global GDP. You have to make a lot of different assumptions in that kind of scenario, what actually happens. But undoubtedly, the impacts to supply chains through semiconductors and technology writ large would be pretty devastating to the global economy. Some of the numbers floating around there from third parties are a hit of 10% to global GDP in sort of a worst-case kind of situation. I saw a question there, like are we going to see tariffs on China on day one, right? Are we going to see a big splash on day one? We don't know yet. Is it going to be the 60% that has been promised on day one? I think it's unlikely. If anything, as I said before, it's likely to be sort of a ramp-up, much more nuanced. There might be some exceptions there, some exclusions. I think for Trump, above all, he was elected on two particular issues, inflation and immigration. Now, for him, the political cost of really stoking inflation is high, and this idea that that would mean that interest rates have to remain high for longer, so for him, there would be a high political cost. It didn't exist in the first Trump administration because the U.S. consumer didn't even know what inflation was. Now everybody's much more sensitive to this. So if I were to speculate, and it really is impossible to say right now, but if I were to speculate, we are likely to see some announcement on day one, something particularly meaningful, but nothing like 60% on every single Chinese import on day one, if that makes sense. Yeah. And I think in our webinar last month, and there's a deck published on our website, we actually went through the residential washing machine scenario back in 2018 when those sort of the timeline of how that went. Not to say that that would be the timeline going forward, but just something to look at sort of historical how that trade measure played out just as one example. Okay. Any other questions you want to pull from? I know we're a couple of minutes over, but we do still have a good chunk of people still on the webinar. There's a question about the Egyptian economy and Suez. I'm not sure if we have any thoughts on that, Adam, do you? I mean, full transparency, we're not covering the Egyptian economy super closely, but I mean, the latest outlook for, let me put it this way, the latest consensus view for Egypt's economy is, I think, a little more positive, actually. A lot of support from the IMF. My understanding is some strengthening ties with Saudi Arabia through trade and some financial flows, so also some internal reforms that we could potentially go into detail here, but I think the outlook here is, I think, stabilized with some potential upside. A lot of external support, though, to back that up. I think perhaps I could close with one question here that folks have had on, is Colombia, for example, a good potential to de-risk from China, right? In a way, we get that question a lot. Who's the new Mexico? Who's the new ASEAN, right? Who's the new China? There's no silver bullet. If anything, all the pressures from a technological standpoint, but particularly from a geopolitical standpoint, point towards reshoring in the long term. So you could have a collection of countries like Vietnam, Malaysia, and then you add Colombia. Some people talk about Peru. In the past, people talked about Turkey. But the new China, the next China is China. You could say in some ways, the next China is the United States, but everything will be much more expensive to produce. And this idea that we don't know how AI is likely to evolve, right, and how the technology is likely to be applied. But automation in general seems to be something that we hear a lot from companies as really sort of an inevitable aspect of just trying to cope with reshoring and the cost that it presents. Okay. Why don't we close there? We went five minutes over. Thank you for all those who stayed on. Again, look for a survey here in the next hour or so. You'll get a copy of the slide deck and the recording once you complete that. And then feel free to go to our website, sign up for our emails, future webinars. We haven't announced those yet for 2025, but I assure you will have some. So just sign up there and you won't miss any. And you can also follow us on LinkedIn to see those as well. So thank you, everyone, for attending. And thank you, Fernanda and Adam, and also Melissa answering questions there in the background. Have a great day.