The Macro Memo - Trade, Tariffs, AI Reality & Sustainability Disclosure: Which macro forces will shape 2026?

In this episode of Macro Memo, we unpack the big forces shaping business as we head into 2026. From the looming U.S. Supreme Court decision on trade tariffs, to the reality behind AI adoption, and the EU’s major revisions to sustainability reporting, our experts Mark Kennedy and George Lagarias from Forvis Mazars, join host Gavin Hinks to explore what these shifts mean for companies worldwide—and what leaders should watch in the year ahead.

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 Mazaz, the international audit, tax, and advisory firm helping businesses around the world operate and grow with confidence.

Hello, and welcome to the latest edition of Macro Memo, our podcast series looking at all the big issues in trade and business. In this episode, we'll be looking at US trade tariffs and whether, or whether the policy is living on borrowed time. We'll be asking whether AI is really delivering the promised benefits as we close the year. And lastly we'll take a look at the EU revisions of sustainability reporting. They're in the last stages of being finalized and we'll be asking whether the work is a good thing or whether it's all gone a little bit too far. As ever, joining us and uploading their own personal expertise for the program are our resident macro maestros, George Legarius and Mark Kennedy.

George, let's turn to trade tariffs first. We're expecting the US Supreme Court to rule on the legality of the US trade tariff policy. What are we expecting, and what are the implications if the court turns against them?

So by and large, the expectation is that the court will not uphold the tariffs as they are. The tariffs have been so basically, the president can only impose tariffs up to fifteen percent for a hundred and eighty days. Okay? Go anything beyond that, and you need congressional approval, which is subject to filibusters and and what have you.

So to impose those tariffs, the president had to invoke the International Emergency Powers Act.

Okay. And the question before the court is whether he was right to do so. Is there really an international emergency?

Now after the oral arguments, the judges, even the conservative ones, they were expressing doubts as to this threshold had been met.

So right now, what we are expecting is some sort of not a rebuke, doesn't work like that an idea that the tariffs are not necessarily legal in the current form, it might be thrown to the lower court. And it's still a question, even when all is said and done, if the tariffs are deemed illegal, what happens with existing trade deals and whether the US government will have to pay the money back? Because the court can decide with a broad ruling, everybody gets their money back. We can have a now ruling and say, okay. The people before the court get their money back. Everybody else has to go to the courts and and claim their own money. Okay.

On the line are about a hundred and forty billion dollars or not point six percent of GDP.

And we I think we heard this week that Costco is even already suing the White House for the money it's paid in tariffs so far.

I I would expect this to to happen if they because they know, obviously, this the Scotus case, so they might be trying to get ahead of the queue. Because think about the the thousands of businesses that are paying tariffs, so they will flood the courts. Maybe Costco is just trying to get ahead of the QC if they can get some money back.

Well definitely no harm being burst to market as it were. Mark, if I can come to you for a moment.

I suppose if you're in business, you spent a year getting used to the uncertainty of yo yoing tariff rates. Now business face the prospect of having to come to terms with whether the tariffs were lawful or not and may have to make more adjustments.

Yeah, and I think that's the point really Gavin. I mean the legality George has covered and I would say just on the topic of whether they'll overturn it or not or whatever the correct phrase is, this is a Supreme Court that is highly political, has been constructed to be so, and has found its way of facilitating the president's agenda at various points during the year. So I wouldn't think it's as simple as binary repeal or not. That said, I think the key point of what you're touching on is this is not really about legalities at all. It's about politics. We have a US administration that has set its stall out very clearly even during the election period that it wishes to disorder or reorder, they would probably say, but disorder as as it stands compared to the status quo, the international trade agreements and structure and framework that's existed for whatever seventy plus years at this stage.

And I think that's the important point. Then for businesses, I think they've already begun to react to that. I don't think any serious business leader is going to read whatever judgment comes out and say, oh, grand, we're back to the way we were. And I think that's the reality for businesses.

And I think the issue in terms of where the Supreme Court might go is as much driven by what does it do to the agenda of reordering against the very real issue in the US, which is what does the fallout mean for the US's economic prospects next year? And that has won the kind of repayment situation to take into account. But also the other very real issue here is that tariffs are increasing costs to US businesses and US consumers, and that is a burning issue that plagued the last administration and is increasingly plaguing this administration. So I think what we're going to see is a political judgment rather than anything else.

George, prospects of a political judgment, but I do wonder if it goes against the White House policy, do we see a fresh round of policy maneuvering and trade talks between the US and other jurisdictions?

The first thing we will see and we are already seeing is a shift towards sector tariffs.

Okay. If you can't the president doesn't have broad powers to to impose tariffs on nations, but he has very broad powers to impose tariffs on on on sectors and products.

So and with with little preparation. So they can shift to product tariffs. Of course, this will upset whole industries, and it will it will make a point because a a very large point of the tariffs was political, as as Mark says, and it was to essentially get some growth back from from trade partners. You cannot achieve this goal if you go into product tariffs, but you can at least target certain industries and still make sure that the deals that were signed are upheld. Okay? Because the EU signed, and it's really the EU that's at stake, they signed a tariff agreement under pressure. If the Supreme Court deems that the president cannot use tariffs in the future, they might renege on the deal.

So what's next then? That's a maneuvering. Is that okay. Fine. We'll put two hundred percent on on your steels, exports and see how you deal with that. So we'll destroy industry X, Y, Z. Or you uphold the deal we already signed.

Mark, I guess that all suggests that no one should panic at the moment about trade tariffs. It's wait and see and adjust once we learn how the White House might react to the ruling.

Yeah. Well, look, I think what George is describing in a way is that the US administration has achieved what it wants. We're moving towards a multi polar bargaining framework rather than a controlled framework. We were there was always bargaining, but it was within rules whether they were cash rules or whatever the rules that we were looking to. I think businesses have already adjusted their thinking to that and I think you can see and maybe we'll come to it maybe later in the podcast, you can see that businesses are looking at things like their regional supply policies, they're looking at alternates and they're looking at long term sales strategies to see where their key markets are.

Right, let's move on. We've only got limited time. Let's talk about artificial intelligence. George, it's been another year of hype about AI. Papers are full of fundraising stories now around various artificial intelligence companies. In the meantime, we seem to also have a spate of stories suggesting that the potential benefits aren't really materialising, at least at an organisational level for companies.

What's your view?

Where are we at with AI? Is it really producing benefits?

The numbers don't suggest that it's producing benefits yet.

So there is a report out of MIT in the summer which suggests that ninety five percent of the companies fail to monetize AI, even when they're investing in it.

Other reports suggest that the number might not be as high, but it's around the eighties, so it's still a big number. I read yet another third report where AI was tested on developers.

And interestingly, the the lead times increased, okay, rather than decreased with with the use of AI. Now having said all that, we've all been experimenting with it, and we can all see that, yes, hopefully, hallucinations are more under control and results are more reliable, we will be able to use it more consistently.

So, you know, we're all very optimistic about that.

But the point we've been making for some time at The Economics Hub in Forvis Mazar is that I think a lot of companies get the problem backwards: oh, we have these new tools, let's see how we can save money.

The better way to solve these problems is, okay, figure out what problem I'm trying to solve first, and then apply intelligence to solve it and see whether AI helped me solve the problem in a more efficient way.

We're trying to experiment with tools that don't quite work yet, and that's why strategically firms have failed to adopt it. And that's why it works at the lower levels, but not strategically.

Strategically, firms need to focus on specific problem solving. What is the problem I'm trying to resolve? Not how I use AI.

Mark, it's a really interesting point because we can all see how AI helps at a desktop level, but the strategic gains seem to be elusive. And that's probably because there's been a lot of talk about experiments, see how it works. But it's very difficult to experiment in that way at a strategic level. You've got to take a much more considered approach.

Yeah, and I think that's the fundamental problem in the way this has been rolled out. I mean, we are look, let's face it, it's not the first time we've had new technology which has been launched into a market which doesn't know what to do with it. I mean, you go right back to the railway bubbles, it's exactly the same story. But essentially what we have here is a very large scale untrammeled experiment in the application of potentially groundbreaking new technology. And it's going to be worked out in that context at desktop level, at company level and at institutional level and country level and so on and so forth.

If I go back to your kind of key question, which is the productivity there, I think we are seeing productivity gains in low level AI, that's not a technical term, but the co pilots of the world, the chat GPT and so on and so forth. It is certainly being used by companies and by teams to increase their productivity. The analogy, which I think is a good one is with Excel back in the 90s or whenever that started, everybody thought it would wipe out accountants, it actually increased what accountants could do. And by the end of the decade, you had even more of us proliferating around the place because what we were doing was better. I think we can see that and that's going to continue. I think when you get into more strategic questions, we haven't yet seen the kind of groundbreaking applications that are industry changing, that are promised or discussed in the media.

And I think the big question that leaves you with, if you go back to this idea of it's a big implementation experiment in a way, we've got two big things I think we need to think about. One is the costs of this development are enormous. They're enormous at company level and they're enormous at societal level, even just down to the energy that it uses and whether that is being used wisely or indeed are we using the right AI because there are less vocal providers in the market who are not leading on LLMs and there's an interesting debate emerging amongst some of those who have been heavily involved in developing LLMs saying we need to take a step back before we take a step forward.

I think that's an important question and that's really for governments and regulators to think about. The other thing is, and George, I think gave a very neat example of it is, there's increasing concern in the business world about actually AI supporting people rather than replacing people. And what's dragging the sound bites is the easy we'll reduce our headcount, but in fact that doesn't deliver better to customers and it doesn't deliver better to society at large. And companies who are thinking about it are seeing customer benefits really come from using AI to support people to do better and to be more productive.

It's kind of a circular answer, but I think that's the way we need to go next.

George, Mark raised an interesting issue. He used the word productivity. If you were a government hoping that widespread implementation of AI was suddenly going to produce the productivity gains that you need to inject some growth into your economy, that doesn't look like it's going to happen.

Yeah, if I could go in there, I think we're on two different tracks here. I'm not saying government will provide the solution in terms of corporate or private sector productivity. I think there's three things that governments should be thinking about. One is there are clearly things that AI can do well at speed, particularly when harnessed with automation strategies.

Governments have large numbers of people working on complex problems. I'm sure that's something that indeed the UK government has actually majored quite a lot in trying to present that that's something it's looking at and I think that's a positive thing for governments to look at. The second thing is I think governments have to recognize that this is effectively a public good and like all public goods, it's best regulated well, which does allow meaning you, it does mean, I know George will be bridling at this, but it does mean that you have to allow businesses get on with the experimentation in different ways and do you need your bottom up because that's where your creativity and innovation comes from.

But at the same time, you need to put some parallels. If we take the internet, the last big change I suppose that we experienced of this nature, how many billions and trillions have been spent on pornography over the last twenty years? Now, don't, you know, each to their own and all that, but I don't see that as a great contribution to the well-being of society at the end of the day. And I think we could do the same here.

We're already seeing AI use for all sorts of less useful purposes. So I think government has a role there and it's sensible, but supportive of business is where I'd like to see it. The third thing is if you believe the hype and I don't know what to believe, some of it is true and some of it won't be true, course.

George hit the nail on the head in passing there. If you take a people led approach, there is inevitably going to be a group of people in every country who will need to be supported through a transition. And that is something that government can and does do well. I would certainly not wait for the private sector to provide for that.

Just staying with you then, Mark, let's finish this topic with a quick word of advice to company leaders still mulling whether AI is going to do some good for them.

I think you have to look at it. I don't think any company can ignore this. And I think for smaller businesses, it's probably looking, as George very correctly said, look at the problems you have, look at what benefits your clients. I think you get a lot of the simpler tools that are available as long as you make sure you have the controls around them and you're not relying too much on them. I think you'll see that benefit. For larger businesses, I think it's a much more strategic exercise and the approach we're taking as a larger business, I suppose, is we're taking a multi year view. We are preparing to invest, we're investing carefully today, but actually anticipating that our major gains are probably going to come a little bit down the road from today.

Right. Look, over in Brussels they're in the final stages of finalising the revisions to what's known as the Omnibus project, but it is really about revising the sustainability reporting directive that the EU has been working on but also the sustainability due diligence directive.

The proposed reforms massively reduce the scope of those pieces of legislation. In the reporting the reform massively reduces the data points that would be reported by companies subject to the legislation.

It's nearly all over, bar the voting as it were, but I wonder at this stage, Mark, whether we can say has it gone too far?

Does it lose some of the spirit of trying to address climate transition or is it still there on the money and alleviating a burden on business at the same time?

Look, I think it's gone very far.

I think it was important that it did happen because I think for businesses it was probably adding to the stress and not actually leading to the right outcomes where we were. That said, I have a concern which I'll come to in a moment, but if you take the big picture, at the end of the day, you will still have ten thousand companies next year in Europe who are very large companies and very influential in terms of the outcomes here, who will be part of the process and continue as if nothing had changed. You have a significant number of other companies who will also be captured in the scope, either voluntarily or partially.

So I think you're still going to have a lot of, you know, you're talking about a population here of nearly fifty thousand companies that are going to continue on a journey, maybe less quickly. And, you know, I think that we take that positive and we should. I think the reason I have a concern and that I step back is that a lot of this is behavioral, and that there is a risk that with a lot of the other things that are happening in the world, companies will take their focus away. And to me, I think the EU and countries within the EU need to probably look at what are the things that materially make a difference ultimately and how they work on those.

And I'll give you two very simple examples.

Energy transition is working. It is happening. And it's happening in the strangest places all around the world and around Europe in particular.

And I think that will continue and that's driven by economics as well as the reporting standards that we've just had. So, I don't see that stopping, but I think and the EU need to make sure we continue to push that, because that's a key element of the strategy.

On the flip side, one of the things that worries me, and I certainly hold my hand up as somebody who participates in it, but travel is booming. We have had almost ten billion air passengers this year, which is four point five percent up on twenty twenty four.

That is an astronomical number and it is an enormous contributor to the whole climate change issue.

I think the reporting standards weren't going to address that. We need to look at other strategies. So I take a fairly balanced view, but I do think having made some good choices in terms of how businesses manage this, it still falls back to regulators and governments to say we're still on the journey, so how we reinforce the behaviours, I think is the important next step in twenty twenty six.

I think roll on new technology among the airlines to clean up all of that air travel. George, what the omnibus represents is a kind of huge reduction in the burden of regulation on European economies, not a total reduction but a huge reduction, does that really give economies a boost in terms of productivity and growth?

It won't because a lot of it had not been implemented yet. So let's just say it's going to work the other way. It might not be as constrictive as it could have been. Okay, right now they raised the cap from two fifty employees for the companies that should apply those rules to one thousand.

They say a net turnover of over fifty million in assets sorry, a net turnover of over fifty million or assets over twenty five million. So about eighty percent of the companies that were supposed to have this in place don't need to anymore. And we're talking about mostly small and medium enterprises. Okay.

I think given the valuation gap between the large companies in the EU and the smaller and mid mid term companies and also the competitive advantages afforded to to the bigger companies in Europe.

I think this is going to be welcome, very welcome for smaller companies.

In Europe, because the European competitive landscape is not like the the US. It's not it's not as open. Entrenched players, they really do have advantages, in economies that are not so well regulated. Many are family owned businesses with ties to governments and and so on and so forth.

So a larger regulatory burden on them and a smaller regulatory burden on their small and medium rivals actually could help level the playing field a little bit more. Having said that, we are talking about sustainability.

Okay, so we can look at the competitive differential, but I'm not sure if we're any close to achieving the goals that sustainability set out to achieve.

Very quickly, Mark, would you want those mid sized companies to participate in sustainability as well?

We do. But I think reporting isn't necessarily the be all and end all in terms of how you achieve that. And I think that's what the omnibus adjustments recognize.

Great. Look, we're coming to the end of our time. This is our last macro memo before Christmas. So very quickly, guys, can I get you to look ahead to twenty twenty six? George, coming to you first, what are the interest rate and inflation prospects for next year? Very quickly.

So we expect slightly lower growth. I think inflation could see a pickup, albeit not a material one, especially after April for all economies because last April, OPEC suffered to reduce oil prices.

So from April twenty twenty six, that benefit will likely dissipate unless you expect to see oil at forty five dollars So we do see we do expect to see an uptick in inflation and slightly more sluggish growth. Having said that, the Fed, for whatever reason, is on a rate cutting path, and I think in the UK, where growth will become a more important concern, I would see more rate cuts in the UK as well.

Mark, it's been a difficult year, twenty twenty five, but economies didn't entirely fall over. They managed through the uncertainty. What does next year look like?

So quickly, I suppose this year hasn't been that bad. Actually, if you look at the likely outturn GDP wise, yes, there's a stretch from the EU where it's close to one percent up to, you know, at the other end, three to four percent in some emerging economies and kind of in the US and if I take UK and so on, you're looking at two to three, it's pretty, it's not bad, right? I think the issue has been more uncertainty and noise around that. I expect that to continue.

And I think if I was taking bets, absent two things I'll mention quickly, I think financial services, manufacturing, life sciences, pharma, all of those industries will probably go into twenty six facing into a reasonably good year, not a high growth year, but a reasonably good year. I think for larger businesses, things like how they deal with AI and people and supply chain on a regional basis is going to be a big differentiator. For smaller businesses, it's much more in your own keeping in your town or village or wherever you are, and that can vary in lots of ways. The two things that hang over that I think could cause uncertainty to turn into something less positive, because uncertainty can have opportunities, we need to remember that, is the two public goods that have a kind of a bubble in them at the moment.

One is AI and if that doesn't start to deliver, I think you could see a bit of a deflation there and that has a consequence in terms of the markets and in terms of investment capability.

I think the second is non bank financing, which is financing lots of things at the moment and I know there's good firewalls post the GFC, but the contagion effect isn't just about impacting banks, it's about the investment capability in economies and I think that's showing signs of heat, but hopefully it'll be managed well as we go into twenty twenty six.

Okay, it is Christmas. If I ask you what you want in your Christmas box for trade this year, Mark, what would it be?

I think a little bit more certainty and I'd like for four of us Mazars, we discover the secret of uniting great people with great technology to give clients great service.

Worthy gifts indeed. George, what kind of economic present do you want under your Christmas tree?

The same one, more certainty.

We need we have no idea what dawns on us. And, you know, that was always the case from a financial perspective, but not necessarily from an economic perspective. In the economy, we had the system that was working. So I understand that system is not necessarily functioning anymore, but having a lot more visibility about what will happen and where is the system going towards, it would really be helpful for businesses and their long term planning.

Well, it's time to put those wishes into your letters to Santa, Mark and George. Thanks very much for joining us in this program. Let's hope Santa can get certainty on the sleigh on Christmas Eve. I've been Gavin Hinks. Thank you very much for joining us in this podcast. Goodbye.

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