The US-China dynamic, artificial intelligence (AI), energy transition, increasing political polarisation and a rising level of hostile activism are potential risks facing company boards in 2025. Directors need to be aware of the changing forces affecting the world, and by default Australia.
Megatrends will influence director discussion in the boardroom in 2025 with the changing US-China dynamic, artificial intelligence (AI), energy transition, increasing political polarisation and a growing level of hostile activism emerging.
At a recent AICD webinar, Forces and Megatrends Shaping 2025, CEO Asia Society Australia Anthony Bubalo and AICD Chief Economist Mark Thirlwell GAICD discussed some of the potential implications for directors.
Bubalo expects there will be more competition and more tension between the US and China.
“The rivalry is now deeply ingrained in the ruling establishments of both countries,” said Bubalo.
President Donald Trump will seek a deal, “it’s in his nature”. But “the likelihood is that it’s going to be more optics than substance is high”.
However, should trade and other tensions increase, the Chinese government might be tempted “to engage in provocative military actions directed at the US, or, more likely, a US ally”, Bubalo suggested.
“There is a perception – which the Chinese Government may share — that President Trump, while he’s happy to engage in trade wars, he is more fearful of real ones. The Chinese authorities might try to test the Trump administration.”
As both capitals exert pressure on other countries to “pick a side”, it will contribute to and accelerate the fragmentation of the global trading system, Bubalo said. “There’s almost a you are either ‘with us’ or ‘against us’ quality to the current approach to trade by both countries,” he explained.
Quality of leadership
Independent of Trump, in recent decades the US doesn't have the resources to be everywhere all at once in the world anymore. The ability and inclination of the United States to be there to fix the world's problems has declined. There will be questions about the quality of US leadership but also the “quantity” of US leadership that the world will see, Bubalo said.
“Many Americans are world weary, and the success of President Trump's ‘America First’ message reflects this. We've already seen the President living up to this kind of popular mandate, pulling America out of global institutions and agreements such as the WHO and the Paris Accords, challenging and quarreling with US allies and partners, Canada, Mexico, NATO, and threatening to end other long-standing US commitments.
If there is a decline in the quantity and the quality of American leadership, the question is whether other countries can pick up the slack?
“While the inclination might be for other coalitions to step in as the United States pulls back, their ability to do so will always be more limited given the resources that they can bring to bear. Moreover, if we see other populist conservative and nation-first governments win elections around the world, this may also undercut the will of others to act. In that regard, President Trump is providing a bit of a nation-first political philosophy to emulate, and a social licence for some governments to drop policies and approaches that are hard or uncomfortable.”
Where once the US inspired “coalitions of the willing”, it might now encourage “coalitions of the unwilling”, he said.
Global problems crossing borders
“This is very bad news for efforts to deal with any global problem that crosses a border, such as climate change, pandemics, poverty and under development, as well as migration.”
In recent years we have seen the expansion of the “internet of things” — the network of devices, vehicles, appliances and other physical objects embedded with sensors, software and network connectivity. But we have also seen growing threats to the “security of things”.
This will likely accelerate in 2025 and there will need to be greater effort to prevent state and non-state actors from disrupting, destroying or exploiting the things that connect us, for example, attacks on subsea cables, but also cyber threats that all of us have been dealing with for a while now, said Bubalo.
The risk of more political polarisation and more extremism, not just in the US but around the world, is increasing, with new actors being driven to destructive acts.
What about Australia’s government?
An incoming government in Australia, regardless of whether it's the continuation of the current government or whether it's a coalition government, will need to avoid being collateral damage in any trade war between the US and China, including if US and China strike some kind of deal that is disadvantageous to Australia, he said.
The Australian government will face a challenge around the current stabilisation framework of Australia-China relations. “The current government has done a lot to stabilise that, but I think that will be challenged by a more intense US-China contest.”
The Government will need to work on improving the security things, while finding the right balance between security and economic efficiency, and limiting the spread of political polarisation and extremism will be a major priority, Bubalo said.
Concentration of trade
AICD Chief Economist Mark Thirlwell GAICD said that the advent of the Trump administration was just one source of uncertainty in a global economy undergoing a series of changes.
For example, recent concerns about tariffs were part of a longer-running story around strains in the world economy and headwinds to global growth. Australia has a high concentration of trade with geo-political rivals at a time of increasing geo-economic fragmentation.
“We built a world economy where countries have been encouraged to specialise for success – in key components, in certain products, in commodities and even in trade relationships. That's a world that's incredibly ill suited to fragmentation, tariff barriers and trade policy uncertainty. We've built some vulnerabilities into the system that we might now start to see play out,” Thirlwell explained. At the global level, less globalisation likely means less growth.
Old age dependency ratios are climbing
And the challenges go beyond trade. For example, the demographic transition is seeing age pyramids across the developed world, and much of East Asia, invert. There are more old people at the same time as growth in the working age population is slowing – or in some cases even reversing – which means that old age dependency ratios are climbing.
That has direct implications for growth but also for the structure of national economies. The need to have more Australian workers employed directly or indirectly in health care industries, for example, leaves less workers available for other parts of the Australian economy while higher dependency ratios can also create a fiscal burden.
“We're seeing demographic change unfold against a backdrop where growth in general is getting harder to come by. So ageing populations, potentially less dynamic populations, and shrinking working age populations are all significant additional headwinds to growth rates,” said Thirlwell.
The rise of artificial intelligence (AI)
So, where might growth come from? The rise of the AI economy is part of a “huge new technological revolution”, said Thirlwell.
“Technological revolutions change everything. They change the economic underpinnings of the economy. They change financial markets, and they change social and political structures,” explained Thirlwell.
“While this is potentially the big growth story that offsets the pessimism around demography and international fragmentation, it's also another major uncertainty risk.”
How the AI revolution plays out for labour productivity has created a range of estimates that he described as “dramatic”.
“A conservatively optimistic estimate would say that labour productivity might grow by about one per cent per annum faster than it otherwise would. That doesn't sound huge, until you think that actually Australia's long-term total labor productivity growth rate is about 1.3 per cent per annum. So if you get this, and it is sustained, it's transformative.”
But transformations are unlikely to be smooth. President Trump has indicated an interest in less regulation of digital assets and their financial services applications.
“One potential downside of a big deregulatory agenda is that you end up making the world safe, not just for rapid productivity growth and innovation, which would be very welcome, but also for meme coins and crypto scams. So one tail risk that I think we need to worry about over the next couple of years is the increased risk of a financial accident,” said Thirlwell.
… and then there’s the energy revolution
Parallel to the technological revolution, we are potentially seeing a major energy revolution, said Thirlwell. “The kind of shift to electrification envisioned by the likes of the International Energy Agency (IEA) over the coming decade has profound implications for commodity prices. It has profound implications for the demand for key resources, and profound implications for politics,” he said. But that energy transition is unlikely to be as straightforward as some of the models suggest.
“If you think about some of those executive orders coming out of the United States over the past couple of weeks – freezes on wind power deployments, attempts to freeze solar deployments, admittedly just on federal land, and the withdrawal from the Paris Agreement — this is still very much a contested energy transition.”
That contestation is another source of uncertainty for markets and for businesses, as is the impact of the climate change the transition is meant to address. For the past two consecutive years, we've had record breaking temperature numbers, and we've also had significant evidence of growing economic and financial costs associated with natural disasters, he said.
“We have to start to look at the rising insurance burden of these costs, and the idea that maybe your rising insurance policy premiums are starting to be kind of, in effect, a quasi carbon price, reflecting the rising risk of climate-related shocks.”
This is an edited version of an AICD webinar held in February 2025. You can find more information about AICD webinars HERE.
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