Political risk exists everywhere, as does uncertainty about how, when, or whether it will manifest itself in ways detrimental to international traders, investors, and lenders. For decades, conventional wisdom dictated that developing and emerging countries were the greatest sources of such risk, due to the absence of meaningful and enforceable laws, the prevalence of corruption, lack of financial resources, and security concerns. That of course remains the case, but as has been proven as a result of the Great Recession, the global war on terror, corruption scandals and growing income disparity, developed countries contribute every bit as much as those ‘other’ countries to the rising risks associated with cross-border transactions.
This has become a source of great concern to many global businesses, which are scrambling to stay ahead of the headlines. Some of the things that used to be taken for granted – such as that Europe will always be a source of stability and growth, or that China is an investment destination that must be included in an investment portfolio – simply are no longer the case. Europe’s rolling recession — complete with anemic growth and security concerns – will mean the continent will be a source of instability for many years to come. China’s incessant bubble economy, declining long-term growth rates, and increasingly unfriendly policies toward foreign investors have given many companies pause for many years now. There are plenty of other examples of how conventional wisdom has been turned upside down.
As the U.S. enters a period of unprecedented post-war political instability, many businesses are wondering how to plan for the near and medium-term future. Decision makers in business sometimes have short memories; a preoccupation with making profit will continue to cloud the judgement of some of them. Recent headlines have stated how optimistic some business leaders are about America’s future, believing that the pro-business platform about to be implemented is a stairway to heaven. It may well be. A significant reduction in corporate tax rates combined with an orientation toward “America First” could indeed propel the U.S. economy to heights unseen in decades — at least, in the short-term.