The Geopolitics of US Tariffs: How Does Political Risk Affect Corporate Defaults, Stock Process, and Financing?

On June 27^th, President Trump said he was ending all trade discussions with Canada in retaliation for the country’s digital services tax and threatened to impose a fresh tariff rate within the next week.

“We will let Canada know the Tariff that they will be paying to do business with the United States of America within the next seven-day period,” the president posted that day on social media.

These sorts of proclamations from the president are common and it’s quite difficult to tell whether the new sanctions will hold or be amended in some way over the course of the next week.

For firms in Canada – like others in countries subjected to the US tariffs – all of this puts considerable attention on new geographic dispersions of revenue, of which political risk will continue to be a significant, shaping influence.

But which aspects of geopolitical risk are most instructive?

In this excellent piece from the Banca d’Italia‘s Working Paper series, the impact of geopolitical risk on firms’ financial performance is assessed.

Using our International Country Risk Guide (ICRG) risk metrics and a novel measure of corporate exposure to these risks by combining information on the geographic distribution of their revenues with an assessment of the political risks of each country where revenues are earned.

The study found that firms that are more exposed to geopolitically risky markets have a higher probability of default, lower stock prices, and higher financing costs. The magnitude of these effects has been growing since 2017, when tensions between China and the United States started to build up, increasing the risks of geopolitical fragmentation.

Lots here to help with today’s uncertainty. (https://lnkd.in/eMKracxa)

Our data drives.

The PRS Group

International Country Risk Guide (ICRG)