The Macro Memo - Trade, Tariffs & Tech: How Geopolitics Is Rewriting Business Strategy

This episode of The Macro Memo podcast delves into the intersection of macroeconomics and geopolitics, highlighting how these factors are reshaping business strategies. With discussions on the shift from neoliberal globalization to a multipolar world, the importance of understanding geopolitical risks for international expansion is emphasized. The conversation also touches on sustainability reporting, the varying approaches to climate change between the US and Europe, and the evolving role of artificial intelligence in productivity. As businesses navigate economic uncertainty, the need for a balance between regulation and deregulation is underscored, alongside a cautious optimism about future government policies.

Transcript

Welcome to MacroMemo, a board agenda podcast exploring the impact of macroeconomics and geopolitics on business with Mark Kennedy, George Lagarias, This episode is brought to you by Forvis Mazars, the international audit, tax, and advisory firm helping businesses around the world operate and grow with confidence.

Hello, and welcome to the macro memo, the podcast all about the latest developments in business and trade. We've got a packed agenda for you. First, we'll be talking about geoeconomics and whether we now understand the world to be about strategy and security rather than trade and economics. Then we'll turn to the subject of sustainability reporting and the review underway in the European Union and what that means for business and sustainability in general. Next, we'll talk about artificial intelligence and whether that's producing the productivity gains we all expect. And lastly, we'll wrap up with chancellor Rachel Reeves' mansion house speech and whether that's gonna give the UK the boost we'd all like to see.

First, though, let's meet our guests. First joining us is Ben Sieger Scott, chief investment officer at Forvis Mazars. Ben, you're joining us today replacing George Lagarias. Much loved, George.

Welcome to the program. Hi. And also with Ben is our macro memo stalwart, Mark Kennedy, member of the executive board here at Forbes Mazars. Mark, let's start with you.

I hear you've been on your travels. You've been off to Lagos in Nigeria. Tell us about that. What did you learn there?

I have. I've been in Lagos a couple of weeks ago to actually celebrate the fiftieth anniversary of Forvis Mazari's being in business in Nigeria, which was a real milestone. And I think too, the first thing you always say about Lagos, if you've ever been there, is it is one of the most energetic cities on the planet and it is astounding every time I go there. But I think what struck me this time, we had a series of meetings with clients and government officials and ambassadors and so on over the two days, And it is a country which is, A, growing incredibly quickly. Everybody knows it's a resource hub for the whole continent, but B, trying to project a different kind of reputation. And it has had a troubled past, but I was really struck by how the business community and government are really trying to push a vision of a modern Nigeria and playing a bigger role in the world, which is very interesting to see.

Is it the biggest economy in Africa?

It's heading that way. Yeah. It's heading that way. I think South Africa is probably still ahead, but growth rates, it is gonna have the biggest population and the biggest economy very soon.

So much to look forward there to there.

A lot of change and a lot of exciting opportunities, I think.

Ben, I understand you've been distracted by a book about distractions.

Yes. Absolutely. Yes. Stolen Focus is the book I've just finished. I really like those sort of, self development books.

It's a really fascinating book. It talks about how easily distracted we all are now. Partly that's by design, so apps trying to gamify and draw you in, look at another one, look at another one, infinite scrolling. But it also reflects on professionalized emails constantly coming in, being available at all hours.

And I think it's really interesting, particularly at the moment with all of the information we're being bombarded with and the news and tying it in with another book I really like, the productivity ninja, that talks about how we're used to thinking about resource in terms of time and money, but actually attention is the most important resource. And if you can sift through the noise, focus on what's most important and put your attention to work, I think that's really important. And everything we're about to talk about today, I think very much ties in with that. There's lots going on.

Where should you focus your attention?

Oh, well, glad you could tear yourself away from the book to be with here with us here making the podcast. Right. Let's turn to our first agenda item, geoeconomics. There's a lot of a lot very much been written about that recently in in terms of us, the world, entering a new era. The old neoliberal globalization era over. We're now talking about a world in which political leaders use trade and economics as weapons of security and strategy. Ben, do you recognize that description of the era that we're now in?

I I I do absolutely. I think that the US has a stated disruptive disrupted global trade policy. But to say that's, you know, a a brand new event, actually, if we look back through history, we had Bretton Woods and the gold standard. We've had Palazzo Accords.

There are periods throughout history where the global dominant trade economy tries to to change what what's going on. And and so I think we have a bit of a framework for that. Actually, I think what we're seeing is is a bit of a reordering from a unipolar world with the US economy effectively dominating all others in most respects. People have talked more towards this bipolar, the strategic competition between the US and China.

I think it's more complicated than that. In fact, I think we're probably heading to a a more multipolar polar world, and in particular, Europe. And in that sense, I mean, Pan Europe, the UK, and and the continent has a really important part to play in that. And that's why what we're seeing at the moment, a lot of the negotiations with the US is is focusing both on China from that competitive point, but also a lot with with Europe and the UK as well.

So so lots going on. Things are changing, but I think it's important not to sit back and see what comes out, but be prepared for that change because that's where the opportunity is going to be.

Mark, if you're running a business, that's a lot to take in there. Forvus Massar c suite survey shows that fifty percent of those polled say economic uncertainty is the biggest constraint on their growth. It's a challenging world to do business in. Yeah, it is.

And I think for businesses, one of the thing, you know, sustainability or sorry, excuse me, stability is really the essence of a good business model and you can plan growth and you can plan your resources and you can plan your supply chain.

So all that Ben has described is creating a lot of uncertainty. I think that the typical business is probably starting to think in shorter term development rather than longer term development because it's so volatile at the moment and that that's a way that you find that true. Interestingly, and I wasn't expecting you to refer to the survey, but if you look at the survey again at the end of last year, CEOs in the C suite were predominantly very positive about the future. And I think that's because you're looking at a generation of leaders who've come through the GFC and come through a pandemic and come through pretty rocky years in between in some parts of the world, and they're pretty convinced they're fairly resilient and they're able to manage change.

I would add to what you've said, Ben, that I don't believe that this is the end of globalization, whatever about the liberal bit of it. But the globalization, you know, we've lived in a globalized trading world for two fifty, three hundred years, And it has been multipolar and bipolar many times, but it's changed and the politics have changed. Business has continued. And I think what we're going through now is a period where people are figuring out how do you operate over the next decade or so and probably planning in very short term leaps over that period.

I've seen the term in the press. I'm gonna ask you very quickly. Do companies now need a chief geopolitics officer on their boards?

Yeah, maybe to go first.

Most businesses, no. Bigger businesses, yes. International, multinationals, probably almost definitely yes. And whether that's a board role or a senior management role, you certainly need to know who can advise you when you're expanding your business internationally.

Interestingly, again, the survey, despite the concern, there was a lot of businesses pointing to a desire to be more international and to invest abroad. And some of that is about taking control of supply chain. And I think that's a feature we're gonna see for the next period. I don't know.

You may have a view on I I would agree.

I but I don't think it's necessarily about a geopolitical adviser. I think it's about having a good long term strategy. We talk about the need that all businesses do have to have on the short term stability and resilience, but I I think that mustn't be at the cost of longer term planning. I think it in in stark contrast, we talk about a lot of board members coming of age in the the global financial crisis.

But post global financial crisis, the era was don't invest in big capital projects. Just try and preserve your cash flow, low inflation, low growth rates. Now we're in the era with interest rates and inflation meaningfully above zero. Businesses will need to invest in the long term, and that's about having a long term strategy with a good consultant input.

It's a really interesting point. But but does a long term strategy stand up to the volatility that we've gone through in terms of tariffs, increasing debt in the US, interest rate volatility? Does a a long term strategy see you through all of that?

I I think it absolutely can do. What we've been used to over the last few decades is having very fragile but very efficient supply chains, a just in time supply chain. But I think increasingly what we're seeing, given the shifts that that are going on, there'll be much greater need to have resilience. That means diversification. That's being nimble, not overinvesting in a very narrow and fragile supply chain, but being able to adjust through time. And I think that's that's where the the part of globalization and expanding overseas, having many different territories rather than having exploited one territory to great advantage over the last decade, that may not be the strategy of the future.

And I yeah. I was when I saw it with short term, suppose maybe just to kinda amplify that a little bit, it's not so much a short term vision. I think you've got to have any business has to have a fundamental view of what's our long term business model, what are we trying to achieve really, what's our purpose in a way. But I think where the short term comes in, I think your risk factors increase over a longer period.

So when you're executing something, I think that's where boards will be focusing and saying, okay, can we do that project, deliver it within a time, and does it give us certainty on whatever we're trying to achieve for a reasonable period? So I think where that becomes very complex, if you take an industry like pharmaceuticals or some of the technology businesses, which are, you know, incredibly expensive to set up. You have a lot of sowing costs. You're looking at ten, fifteen year investments.

I think people will hesitate a little bit more before starting something. But once they've decided they're going ahead, they'll go ahead and they're in it then for the long game. So it's not that people are becoming exceptionally short term.

You know?

Yeah.

I think it's going to be about prioritizing your whole suite of projects.

Yeah. Well, that's a good note to end on that item on. Our second agenda item, sustainability reporting in the EU, that's under review. The European Commission is in the process of changing the two big pieces of legislation that are about sustainability reporting and human rights due diligence. It looks as if the direction of travel there is to reduce the number of companies drastically subject to those reporting rules. Mark, it's a story about deregulation, isn't it, really, and competitiveness through deregulation?

I think in part. I think in part it is. I'm not sure that I I don't think we've gone so far into the regulation that I'd say it's deregulation. I think what it is is the EU Commission listening to feedback from companies around Europe.

And I think there's a couple of important points that are getting obscured in the discussion, which first is I think a lot of this is stemming from the Dragi report, maybe not directly addressed there, but there's clearly a mission in Europe to make the block more competitive, more effective, and really address some challenges that are there, which I think is a very positive thing from a business perspective.

I think the second thing is that the commission and I think the countries, the member countries are not wavering in their determination to deal with climate change and to deal with the just transition and all of that.

I think what really is that having got into how you do that, they're listening to companies and saying, okay, you've got over a thousand data points that everybody's got to collect. It's just too many. It's too complex. And while it might help financial report or sustainability reporting, it doesn't necessarily move the dial on what behaviors you have.

So I think that's what you're seeing is a shift from how we in how we do that. And I think that's a much more important thing to remember. I think the other thing that in the longer term, everybody accepts if you talk to insurers or businesses that are right at the cold face of climate change now, that this is gonna get worse and worse and worse. And I think Europe is very clear.

We will have first mover advantage if we stick the course, as I say, varying the how and maybe looking at where you get impacts. Do you need all smaller companies to be in and so on? So I think that's the debate that's going on at the moment.

Well, let me just stay with you. I'll come to Ben in a minute. But one of the other key drives is to reduce the number of companies that undertake the reporting.

If many of the campaign groups around sustainability say if you reduce it as drastically as many propose, you're essentially gutting the sustainability element of the reporting I think that's a view.

I'm not sure that I agree. If you look at the so if you look at the impact of very large companies, it is far greater than, you know, an aggregation of hundreds and hundreds of smaller businesses.

I think a lot of domestic legislation would gradually move smaller businesses in any event, particularly in the UK, but, you know, the same in Ireland, many countries are introducing standards which will not be part of the reporting mechanism, but which will drive better behaviors from a climate change perspective anyway. And I think the other factor is that when you look at the companies that are now being scoped out, a lot of them are subsidiaries of larger businesses. So if you're rolling that up and reporting at the top, again, it's a question of reporting. And I think it's not a criticism, but I think when the standards were introduced, we followed a kind of canonical approach, which mirrors financial reporting, which is a system that has been around for a long, long time and developed and become more complex.

And we tried to hit the industries with in three or four years, here's a new stat, you know, it's just an awful lot to take on and maybe missing the point in terms of our ultimate goal. So I think it's quite sensible what's been suggested.

Ben, do investors see competitive advantage coming out of a softening of regulation in the way that the European Commission currently proposes?

I I'm not sure I would say it explicitly as as an advantage, but I think that the point about those stakeholders, as as Mark was saying, the direction of travel is is really clear. The question's over implementation. And businesses, if you want to be a long term business, and most businesses should aim to be in business forever, you need to account for the impacts of climate change and other sustainability characteristics. It's something stakeholders are really focused on.

At the same time, again, Mark was saying, there's there's been such a rapid pace of metrics and and various other tests. The industry needs to make sure that those tests are appropriate and proportionate to achieving those aims. And I think where investors are potentially buoyed is in some of those businesses that were struggling under the excessive reporting from from the initial wave. Coming at a time tying in with our previous conversation, if there is going to be a tougher trade environment, businesses are facing other costs.

If you start layering costs upon costs upon costs, that's not going to be necessarily a good outcome for all companies. But it's certainly not going away, and that stakeholder pressure over the long term is going to remain. But I think it's about getting the sizing right for those disclosures.

It's really interesting that the stakeholder pressure is being maintained when we have the largest economy in the world, the largest jurisdiction retreating from ESG reporting or sustainability reporting.

I well, I I I think it's very important to highlight it is it is the federal government in the US that in the current administration is moving away from it. That administration changes periodically, and many states take a different view, and indeed, some of the asset managers base there, and it's a starkly different view to to to what's happening in the UK and Europe. And I think it's probably going to be more of a long term timing factor. But I think, again, coming back to stakeholders, it's the underlying client and investors that are driving us. You know, if we're gonna talk about the UK, all you've got to look at is Jeremy Clarkson, who's now bought a farm and has gone from being somewhat skeptical Yeah. To, you know, a real flag waver. And I think that that's representative of a lot of other stakeholders as well.

Mark, let's try not to dwell on Jeremy Clarkson if we can help with Jeremy at all.

If you if I think I'd add the US situation was very different anyway in that if you spend time in the US speaking to investors and people who were concerned about climate change, there is far more of a belief that there's a technological solution than there is in Europe and other parts of the world. So I think you were gonna get that divergence at some point. I think the second thing is I go back to the point I made earlier. This is driven in part by the Draghi report and Europe and European businesses and UK businesses, I believe, taking the kind of pan European view have to be competitive because there's very little point in having failing businesses and us buying all our goods and services from American companies or Chinese companies or whatever it is because that ain't gonna solve the climate change question either.

So, you know, I think what is being proposed is actually a sensible way of moving this agenda forward. The other thing is we also need to remember if we're thinking about the US, India and China and Africa, and they're very different stories in terms of what governments are focusing on and doing. And in fact, in some parts of the world, there's real progress being made in climate change, even though we don't like to acknowledge it too much. So I think it's, you know, I think Europe is taking a reasonable stance here.

And I think for business, it's good and hopefully helps investors back European businesses and back UK businesses.

Well, you mentioned technology solutions there. So that gives us an opportunity to segue into our next agenda item, artificial intelligence.

There's a lot of skepticism now that it particularly in the press that it will produce the productivity gains that were predicted at the outset when ChatGPT launched.

Many experts say it'll sustain companies. It won't disrupt sectors. I wonder, Ben, will AI transform economies? And what if it will, what kind of time frame are we looking at?

Well, it's hard to know specifically what what all of the advantages will be, but I think AI is set to improve productivity. If you look at all of the the great eras, the steam engine, electrification, the Internet, this is potentially the next wave. I don't think it's going to replace everything, that's what what some of the the doomsayers may say, but it is going to be an evolution as all technology is. And we're already seeing it today.

So people that might believe it it's not going to come to anything, you just need to to go on the Internet now. Everything is AI generated. You go onto a news story. You get summaries.

Lots of people are using ChatGPT. We're even seeing on, you know, in the broader economy, not necessarily people losing their jobs because of AI, but in some industries, jobs are are vacancies are coming up, but they're not being replaced because those efficiencies sort of can be had. And at the same time, the the nature of those those those jobs are changing. So we are likely to see and already seeing people spend less time writing the first draft of report, but instead doing more of the editing.

We're seeing summaries being written ever ever more quickly. You can have a meeting. Minutes can be taken. It is a different skill, but it is just as important.

There is now a job called a prompt engineer that didn't exist ten years ago, and prompting AI is is not straightforward. But I think the the fact we're seeing though those changes already starting to come through is really important. To your point on the time frame, though, as with all technology, there's there's a lot of enthusiasm in the short term that sometimes the reality doesn't quite meet that expectation, but in the long term, it really comes through. As the law goes, we tend to overestimate technology in the short term and underestimate it in the long term.

I think that's true of AI, but you are looking at multi year, probably a a decade or so for it to fully embed and to to really figure out what those use cases are.

Mark, we're a decade out maybe. The Forvis Mazar c suite survey has fifty four percent of execs saying AI will have will have a major impact on their businesses.

But I think many business leaders are seeing or struggling to see where they get competitive advantage from AI.

Yeah. No, I think that's a fair comment.

I suppose, look, any new technology will bring lots of opportunities, I'm sure. I think with AI, you have to be careful as to what you're talking about. So most of what we're doing today is large language models, which are optimized for general usage. And I think the best analogy is with Excel in 1980s and 1990s or spreadsheets, you know, whatever version where I remember when I started out as an accountant, as a trainee, we were still getting books and records and big red ledgers, and then suddenly we had not laptops, but computers of a sort and spreadsheets.

Now everybody said that's the end of accounting. And in ten years, in fact, it created a whole lot of other things that accountants could do. And they moved on to much higher value work. Actually there was an explosion in the number of people in the profession. I think we may go in some businesses along that curve with the basic LLMs that are there.

I also think it's important to say, and, you know, from a professional services perspective, we are not anticipating reducing the numbers of people that we have in our business because like Excel, it's a relatively, I don't wanna say stupid, but it's not that berated too. You need people to be making the discretionary decisions. It can bring productivity, but it doesn't bring solutions that you necessarily need. So that's one category.

But if you're starting to tune the LLMs, for some businesses, yes, there may be enormous changes in their business model. The cost of that is in the billions. It's not in the tens of millions. It's in the billions.

So how many businesses can do that? I'm not too sure. And then you move into other types of AI because we're starting to see now tools that are built around network analysis and so on, much higher accuracy rates, very limited use cases, but again, who knows where it's going? So I think we're at least a ten year journey and maybe longer.

But if I was the CEO, I'd be saying, yes, there's disruption ahead and you've got to start thinking about that and preparing for it.

Okay.

Now speaking of disruption, we've had Rachel Reeves, UK chancellor's mansion house speech this week. We can't go through the detail, Ben, but a lot about of that was about deregulation.

She even used the phrase releasing the boot on the neck of the city of London, which seemed overly violent a phrase to choose.

Do you were investors happy with this speech, and is it enough, or or are there other fender fundamentals that need to be addressed?

I I think investors will will broadly cheer. Deregulation in a broad sense is is one of our key themes. That is likely to increase growth and productivity.

You tend to start with financial services because, actually, ultimate deregulation tends to mean is allowing more credit. Credit allows businesses and economies to grow. But, crucially, the chancellor said, we're starting with financial services but said to all of the other regulators, you know, you're next. Watch out.

So I think there is there is positivity there. Of course, deregulation comes with its own risk exactly as we saw with the global financial crisis. You deregulate. It's good in the short term.

But if there is too much uncontrolled deregulation, you build up trouble down the road. But I think investors were broadly cheering those moves. Is it going to be enough?

That's hard to say. There there was a lot of positive words, but we need to see what comes through in the detail and what it means in reality. Because I think with many governments, you hear a lot of good language and good speeches. But you need to see how it comes through in those government directives and how it really starts trickling down to the real economy.

Devil's in the detail, Mark, but does what you've heard make London a more interesting place to list?

Does it make I'm not sure that it makes it more interesting to list at the moment.

I think the, you know, the acid test of where you list is capital more than anything else in Kenya. Like, the UK has an incredibly deep and strong market, so I don't think we're I'm not as negative as some people are, but I'm not sure that what the chancellor raised the other evening is going to change that landscape enormously. Ben is more of the investment expert, and he'll probably correct me in a minute. But if I can just pick up on what was said on banking in particular, I think an amount of deregulation is probably appropriate, but what you you have to really keep an eye on what you're deregulating and what's the purpose of different types of finance institutions. And I think there's probably two or three interesting things going on at the moment. One is investment banks generally haven't been as making as much money as they would like to, and deregulation may help with that and could be positive in terms of growth.

You're not sure that you want to take the foot off the brake in terms of general lending in a time where risks are higher because you don't we've been there before. And I mean, in Ireland, we have a particularly colorful history on that in the last twenty years, and the consequences are pretty difficult if you don't manage that kind of regulation, deregulation balance well. And I think there's a fundamental issue that she pointed to, which is about mortgages and house building, which is a very different kind of market. And personally, I mean, people will be shocked at this.

I don't think it's really a for profit market in the long run at all. It's much more of a public utility and that I'd be very careful in how much leeway I put there. That said, government needs to do something because house starts are still thirty to forty percent behind where they were pre COVID. So there is a fundamental problem in the UK and in Europe in the amount of building that's going on, but I'm not sure that opening the mortgage market out is gonna solve that problem of itself.

And and there is a there's a very interesting related point because one of the things the government is trying to do is get more investment, more savers to invest in the UK market. To your question of is it going to fix things in of itself?

Not necessarily. What we do need is is a much broader market. You need all of the infrastructure, the venture capital, the private capital to create a really strong ecosystem. And in the UK, we have a very high savings rate.

A lot of investors instead of investing, they're sat in cash for a variety of reasons. And one of the things that that worried me a little bit on on the mortgage side, there was a survey recently where relatively affluent people, so this isn't just anyone off the street, But sixty percent of respondents thought that house prices would go up again in the next twenty five years to two hundred percent they've gone in the last twenty five years. And there's a view that actually I don't need to invest in the economy or businesses because my house will do that, and that is extremely unlikely. And

it's that shift into an investing culture, one that supports businesses through a variety of mechanisms, through incentivization, not necessarily by dictat.

And that's that's what I think the government thinks. I think that culture, I think that's what governments should be focused on.

Can you create a sense that for people who want to invest, that it's a good place to invest in different ways in a whole variety? I think that's the key to actually solving the core issue. On mortgages, again, and it's a bit of a hobby horse and mine again because of the Irish history, but also because I'm a massive proponent of instruments like covered bonds. You know, there are ways to strengthen a housing market, and I'm not sure just making it easier to have a mortgage is the answer. And so I think you need a blended solution there as well.

So pretty pleased with the direction of travel, but a lot of weariness about how we pan out in the detail.

You have to remember the Mansion of speech, any of those speeches, they're not a policy you're not sitting in a policy room. They're giving directions. So I think there's plenty of room for the government to finesse some of those ideas and actually do some very interesting things.

Well, I think that brings us to the end of our discussion. Let's just finish finish up with the question we always ask, whether you're bullish or bearish at this point in the economy. Mark, you first.

I'm gonna do a George, short or long term, but I'm a bit I'm a bit bearish for the rest of the year. I have a feeling volatility is going to up and down, but longer term bullish, particularly on Europe and the UK.

Oh, I think that may be the first time you've used the term bearish in your own in your own sentiments.

Ben, how about you?

I'm I'm, you know, I'm moderately bullish. I think there are there are risks out there. There could be signs of complacency. There are trade wars.

There are debt concerns. But fundamentally, fundamental earnings growth in companies is higher than trend. There's liquidity coming through, and the US is about to deploy tax cuts. There's fiscal spending elsewhere.

I think the baseline is is pretty rosy, but there are some big risks that could derail things.

Rosy future with some risks along the way. Ben Siegel, Scott, Mark Kennedy, thank you very much. I think we can con conclude with the view that neither of you will ever be replaced by artificial intelligence. And thanks to all of you for logging in and streaming this podcast. We'll be back again soon. Bye bye.

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