The Key Drivers of Critical Materials Demand

President-elect Donald Trump recently proposed new tariffs against several countries — from Mexico and Canada to BRICS countries. How could these proposed tariffs impact the strength of the dollar?

The prospect of heightened tariffs is creating significant uncertainty for U.S. and multinational companies alike, which, in turn, could unsettle markets and cause unprecedented fluctuations in the strength of the U.S. dollar. While some businesses, particularly Mag 7 players like Apple, Microsoft and Amazon, may benefit due to margin expansion and earnings resilience, many others face growing risks. The key questions revolve around managing volatility: How will markets respond? Where should capital flow? And could new currencies emerge as alternatives? This environment requires businesses to be more prepared than ever to not just weather the storm but potentially thrive in a landscape that favors those willing and able to be proactive.

Ironically, while the proposed tariffs aim to protect American trade, in reality, they’re driving up the dollar’s value. In simple terms, fewer imports mean less need for foreign currency, which strengthens the dollar. And yet, despite any initial dollar surge, the real story will center around volatility, as retaliatory tariffs and inflation kick in.

More specifically, Trump said he would require the BRICS countries to commit to not creating a new currency or they would face 100% tariffs. What is the likelihood of BRICS countries making this commitment? And how could this affect currency volatility?

There are many factors that make it unlikely that the BRICS countries could put together an alternative currency to compete with the U.S. dollar, particularly in the near term, such as the alliance’s considerable geopolitical and economic differences.

While a new currency may not be a realistic risk, the real question CFOs should be asking isn’t if volatility is coming, but whether their currency risk management programs are fit for purpose and primed for another four years of turbulence. History tells us exactly what to expect – the last Trump administration saw the highest currency volatility in 15-20 years.

We’re telling our clients to prepare for additional and heightened currency volatility, which adds another layer of uncertainty to an already complex economic landscape. Companies with significant international exposure may need to strengthen their hedging strategies.

With a strong dollar likely continuing into the new Trump administration, what businesses or industries stand to benefit?

For major players in the tech industry, this could be an opportunity to emerge as strategic winners. Their ability to expand margins and demonstrate resilience in earnings places them in a favorable position to absorb currency fluctuations. This financial robustness allows them to maintain competitive pricing and invest strategically in global markets, even in the face of economic turbulence. These companies exemplify how operational adaptability can translate into sustained growth, even amidst the chaos of a volatile market.

Additionally, export champions – from Silicon Valley tech to Midwest manufacturers – will see their global competitiveness soar as their products become more affordable worldwide.

On the other hand, what are some businesses or industries that could face some headwinds from a strong dollar?

A strong dollar challenges U.S. exporters and multinationals by making American goods more expensive for global buyers and reducing the value of foreign earnings when converted back to dollars. For companies manufacturing overseas, this currency dynamic could erode profitability and pressure stock prices.

Emerging markets also face headwinds as capital flows to the U.S., increasing the burden of dollar-denominated debt and raising the cost of imported essentials like energy and grain.

For companies that face tariffs and decide to shift production to locations like Mexico, they will have to consider passing these increased costs onto consumers. Global food and consumer goods giants, for example, that are invested in regions susceptible to tariffs may need to adjust their pricing strategies to cope with these added expenses.

This split in the business landscape into “winners” and “losers” highlights the critical need for businesses to evaluate their vulnerability to tariff impacts and plan accordingly.

Do you have any unique predictions on the outlook of the markets in the new year?

We’re seeing something remarkable in corporate America – a record $3.5 trillion in corporate liquidity against $16.6 trillion in revenue. That’s the highest level in two years, with a $255 billion jump year-over-year. But here’s what’s fascinating – unlike past liquidity buildups driven by fear, this time companies are stockpiling cash with purpose. They’re not just building war chests for uncertainty; they’re loading ammunition for growth. And this isn’t just about survival; it’s about companies positioning themselves for strategic moves in what we expect to be a very active 2025 deal environment.

Historically, when liquidity rises, deals follow. Over the past five years, Kyriba’s analysis shows a strong correlation between rising liquidity levels and increased M&A, IPO and PE transaction activity, which peaked in 2021 with 8,500 transactions. Now we’re seeing the coiled-spring effect: liquidity levels are nearly matching 2021’s peak, but transaction volumes in 2023 were 1,825 deals lower.

We attribute this to a mix of market psychology and external pressures – geopolitical tensions, monetary tightening cycles, and ongoing uncertainty – which have kept many companies in a “wait and see” mode.

Importantly, the tide is turning. With inflation moderating, interest rates stabilizing, and confidence gradually returning to the markets, companies are positioning themselves for action – despite the ‘new normal’ of volatility.