Why the Geopolitical Climate Remains a Focus for Investors in 2025

by Greg Valliere, Chief U.S. Policy Strategist, AGF Investments

Wars in the Mid-East & Ukraine remain potential hot spots that could have an impact on financial markets.

Washington D.C. insiders are bracing for one of the most unpredictable four years in recent memory. Among the explosive issues: tariffs, wars in the Mideast and Ukraine – overseen by a hardline U.S. Secretary of State who is willing to confront China.

The American public hasn't focused much on foreign policy; voters have been far more concerned about food prices.

But president-elect Donald Trump has vowed to impose a muscular foreign policy – and he has vowed to end the Ukraine war in one day.  The U.S. has spent an astonishing sum on Ukraine, as much as US$125 billion, according to some estimates.

U.S. aid to Israel since the Gaza war began has been about US$20 billion in the Mideast, where a guerrilla war could persist despite the recent ceasefire agreement in Lebanon between Isreal and Hezbollah, most U.S. officials believe.

There are two persistent geopolitical wild cards – first, the great provocateur in the Mideast, the Iranians. Radicals in Tehran have funded Hamas, the Houthis, Hezbollah and other militant groups.

More importantly, Iranian scientists are working rapidly on producing a crude nuclear bomb. A delivery system hasn't been perfected, but defence analysts think it's just a matter of time before the Iranians have the bomb, which almost certainly would prompt a response from Israel.

The other wild card is Trump's pledge to raise tariffs on China (and other countries too). This policy will be coordinated by the very hawkish Secretary of State, Marco Rubio, who is a fierce critic of China.  Rubio almost certainly will win Senate confirmation.

Several other Washington hardliners are determined to crack down on China's spying, its treatment of dissidents and designs on Taiwan. U.S. Congress is filled with hawks who want significantly higher tariffs – and sanctions if China continues to partner with Russia.

The Trump hawks have one major problem – the public's indifference to a hard-line U.S. stance on geopolitics. A mood of isolationism has taken hold in much of America – young conservatives in particular resist spending huge new sums on defence. Ukraine will not get another US$50 or $60 billion this year, that seems certain.

The U.S. will come close to spending US$850 billion on total defence outlays this fiscal year, despite the staggering budget deficit, now running at nearly US$2 trillion annually, with no sign of restraint in sight. Trump says he will pay for this new spending with his tariffs, but the math simply doesn't work.

There will be other sources of new spending –on Venezuela, Haiti, Korea, etc.  And the friction between the U.S. and Canada may persist over Ottawa's reluctance to spend more on NATO, a huge issue for Trump.

Our bottom line: we're in for an unstable stretch – rhetorically, at least – as Trump seeks to push the limit. Most of his early nominees have shown a spectacular inconsistency, and at least one or two of these nominees may fail to win confirmation.

Second-term presidents often focus on foreign policy, not domestic issues, and it strikes us that with the U.S. economy in decent shape, Trump will have plenty of time to focus on Russia, China, North Korea, Iran and others.

Not everything will be gloomy, in our opinion, as Russia's losses – in morale, the battlefield and its economy – continuing to soar, and officials in Beijing have plenty on their plate. While the West can muddle through geopolitics in this coming year, the Mideast – as usual – will continue to be the greatest threat.

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Greg ValliereChief U.S. Policy StrategistAGF Investments

The views expressed are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds, or investment strategies. 

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