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In the ongoing global disorder, households, companies and countries must focus on risk mitigation. A checklist.
Image Source: Getty
Few have disrupted international relations as profoundly as the first 90 days of Donald J. Trump’s second term as President of the United States (US). Led by an ‘America First’ or a ‘Make America Great Again’ political rhetoric, the past three months ending on 20 April 2025 brought an unmatched, unrelenting disruption in global economics. From households, consumers, and investors to firms and countries, a tsunami of unending disorder is forcing the world to shift from thinking about growth and prosperity to risk and survival.
It seems that Trump has converted the world into a target practice shooting range, with each person, each company, each country wondering: “Are we next?”. Beyond the political rhetoric and past the go-go hype, there seems to be no plan in place, no predictability of actions. As a result, the US is losing a precious idea that has characterised it for the past eight decades: trust. This is not to say, trust will return if Trump does good by countries. No, trust is not merely being good, honest, sincere, generous or moral. By those parameters, Europe would be far more trustworthy. Trust is behaving predictably. It is the missing middle of international relations, located between the two words—without trust, there can be no relations.
Beyond the political rhetoric and past the go-go hype, there seems to be no plan in place, no predictability of actions.
The implications of trust as an enabling hyphen between countries being wrested out are many. This essay looks at three constituencies and offers frameworks within which they can function over optimistic to pessimistic timelines. On an optimistic note, this uncertainty of trust should get over in the next three to six months, as the US home markets, comprising stocks, bonds and currencies on the financial side, enterprises and capital drivers on the corporate side, and jobs, inflation and recession on the household side send signals to that effect. On a pessimistic scale, it could take another 45 months, when Trump demits office, during which the country could stand behind him and swallow the looming hardship, for these ambiguities to end.
Irrespective, here’s what households, firms, and countries face and how they can survive this great disruption. Each constituency faces different kinds of threats, each must manage them uniquely. There are four basic prerequisites to do this. First, the gaze needs to be directed inwards, as that’s the only thing that can be controlled. Second, this gaze needs to understand that this is a time of mitigating risk rather than seeking returns; thus, a safety net is crucial. Third, it demands strict financial management for all entities. Fourth, all need to reassess the strategic direction of their goals and outcomes. And fifth, it needs new kinds of collaborations and partnerships.
On a pessimistic scale, it could take another 45 months, when Trump demits office, during which the country could stand behind him and swallow the looming hardship, for these ambiguities to end.
To rephrase Joseph Schumpeter, we need to focus on the ‘creative’ while managing the ongoing ‘destruction’. With one difference: this time it is not a “process of industrial mutation that incessantly revolutionises the economic structure from within, incessantly destroying the old one, incessantly creating a new one”. This is a broader geopolitical genetic engineering of an entire system upon which international relations stand.
Any trade war between nations has its victims, of which the most vulnerable faces are households. As the disruption gathers momentum, companies will become unprofitable and will lay people off. Be prepared. Double your survival resilience. For instance, if you have planned for six months’ spending as a time during which to find another job or start a small self-employment gig, double it to 12; if 12 to 24 months and so on.
Next, there is no getting away from non-discretionary, non-negotiable spending such as on rent and food, utilities and transport, debt repayments and healthcare, and, of course, taxes. Pay back your loans as soon as you can. Again, non-discretionary loans such as those for financing assets such as a house are here to stay. So manage them. Clear your credit card debts immediately. On the other side, discretionary spends such as second homes, new cars or phones, vacations, eating out and suchlike can be curtailed. As can discretionary debt for discretionary spending.
There is no getting away from non-discretionary, non-negotiable spending such as on rent and food, utilities and transport, debt repayments and healthcare, and, of course, taxes.
On the investment side, relook at your asset allocation and diversification. If you are comfortable with the risk part (equities) of your portfolio falling 40 percent, stay invested. If not, rework your sleep and comfort; these are essentials to bounce back. Those of you who are in panic because your SIPs are no longer rising in a straight line, this is a lesson to understand risk experientially. Focus on your strategic goals, such as retirement or children’s education, and blur out everything else for the time being.
Finally, this is also a good time to rethink a second income. At worst, assume that the second half of your life, which would have begun post-retirement, is here. If there is something you want to build, do or create after retirement, imagine it’s here and prepare.
With tariffs having the power to disable going concerns, it is time to reimagine your EBITDA (earnings before interest, taxes, depreciation and amortisation). The average EBITDA margin (operational costs as a percentage of revenues) for S&P 500 US companies hovers between 25 percent and 30 percent, while that of Indian companies on the Nifty 50 is at 33 percent. A tariff shock could raise raw material prices and topple this margin of safety. Plan for a higher EBITDA, reduce costs. Focus on strategic inputs, and among them, those that are vulnerable to their origins, such as those from China. Seek out alternatives or increase the raw material inventory. Lock into long-term contracts at cheap prices. At the same time, be prepared for a lower net margin. This may impact the stock price, but apart from speculators, nobody is going to complain.
Next, manage capital tightly. Interest cover, which measures how easily a company can pay its debts (technically, earnings before depreciation and taxes as a percentage of interest), is considered healthy at a ratio of 2. That is, it should now be higher. A company’s ability to pay this fixed cost (including other costs such as salaries or raw materials) must not get in the way of doing business. Further, if there are expansion plans, check cash reserves and hold back until the heat of this crisis reduces. But for cash-rich firms, this would be a good time to use it to get land at cheap rates. Whether to expand capacity at a time of a looming recession in the US would be a business decision. Generally, a recession is a time to conserve capital. But again, some entities use a downturn to consolidate operations. Some industries, such as healthcare, are recession-proof; they may use this opportunity to expand.
Interest cover, which measures how easily a company can pay its debts (technically, earnings before depreciation and taxes as a percentage of interest), is considered healthy at a ratio of 2.
Forget the high-margins, low-turnovers game. This is the time for low margins, turnovers. Tariffs will bring with them a cost that will translate into inflation. At such a point, consumers will become less quality or brand-conscious and seek greater price value. Staying afloat on low margins is better than sinking with high margins. This will also make goods competitive for the rest of the world. Likewise, invest in and support high-performing employees, and retain them at any cost.
Finally, technologies are friends, and most of them are not used to their full potential. Embrace them to deliver efficiencies in areas that range from procurements to supply chains, operations to logistics. Use Artificial Intelligence formats to tighten processes, productivity, and customer feedback.
Although the dominant discourse of the ongoing disruption is around the economy, countries must embed strategic dependencies into their risk mitigation plans. First, stop being strategically vacuous, as the consequences of Bangladesh’s recent geopolitical fiasco with India show. Bangladesh is insignificant in the larger scheme of things, but in a potential downturn, when every truck will carry jobs, growth, and products, this is the last thing to do. Learn from the European Union (EU), which is going through the pain of strategic slumber. It had outsourced its security to the US, its energy to Russia, its markets to China, and its fertility to immigrants. Late but not lost, the continent is introspecting on each of these decisions.
In a war, there are generally two factions of nations. But in 2025, Trump’s trade wars are pitching the US against 192 member states of the United Nations (UN). His manic-depressive tariff power play is directed against all, with the US as ‘victim’. On the surface, this trick has worked for him in business and may have brought companies to the negotiating table. It also seems to be working with “more than 50 countries.” But China is not biting. It doesn’t need to: 120 countries have China as their largest trading partner. The tariff war between the US and China will need decisions that may not necessarily be economic, they will be strategic too. Whether the US and China shake hands or continue their great power rivalry remains open-ended. Other countries will need to find strategic and economic spaces to function within these clashes.
The tariff war between the US and China will need decisions that may not necessarily be economic, they will be strategic too.
Domestically, leaders will need to manage their finances better. Five countries have their public sector (government) expenses as a percentage of their GDPs close to 45 percent or higher: Italy (47.6 percent), France (47.3 percent), Greece (47.2 percent), Austria (46.5 percent), and Finland (44.9 percent). Ukraine’s stands at 66.5 percent. These are supremely vulnerable to geoeconomic shocks. For context, against the world average 28.9 percent, the EU stands at 39.4 percent, the US 24.5 percent, Japan 21.0 precent, Indonesia 15.4 percent, and India 13.3 percent.
If a global recession recurs, as it has in 1975 due to oil shocks in 1973-74, in 1982 due to the second oil shock of 1979, in 1991 due to geopolitical uncertainty and another sharp increase in oil prices, and 2009 due to the trans-Atlantic economic crisis, government expenditure has been and will continue to be the hardest to manage. Leaders need to prepare today for that dark tomorrow. Perhaps a new political economy model that does not lean on entitlements but on empowerment, not freebies but on opportunities, could work. It will be difficult to negotiate this in democracies. But that’s the job of leaders. It would be tempting for governments to take on debt, as the G20 countries did during the COVID-19 crisis. Resist that temptation, keep debt and the resultant bloating of the fiscal deficit as the final, not the first, financial arsenal.
The only institutions that can help countries prevent or get out of recessions are the private sector, private capital, private initiative, private innovation, private markets, private enterprises, factories and products. Governments only have the power to tax. They can eat wealth, not create it. This is something Trump has understood and has embarked on making doing business in the US easier. As a result, for unions such as the EU or countries such as India, regulatory easing becomes a strategic imperative. Both jurisdictions know this. Both are debating it. Neither is executing it to scale. This is an opportunity that’s passing us by. Big government has to give way to efficient government. The hermeneutics of suspicion against the private sector must give way to the hermeneutics of enablement. There is no other way to build wealth and tide us over this crisis, period.
The hermeneutics of suspicion against the private sector must give way to the hermeneutics of enablement.
Finally, nations need to come together and pivot around a few basic issues. Peace is the beginning. The economy is in the middle. And prosperity is the outcome. Each country will need to work with its unique strengths and weaknesses, but the overall collaboration to derisk peace, economy, and prosperity must function within intersecting circles of trust. The time of a ‘with us or against us’ narrative is over. The time of ‘your enemy should be our enemy’ is behind us. The time of ‘your problems are the world’s problems’ is a forgotten footnote of history. The time of ‘do as I say or else’ that is slowly becoming ‘do as I say until I change my mind’ will follow the same path.
All of which shows how Trump is an opportunity that can get the world leaner without being meaner.
Gautam Chikermane is Vice President at the Observer Research Foundation.
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Gautam Chikermane is Vice President at Observer Research Foundation, New Delhi. His areas of research are grand strategy, economics, and foreign policy. He speaks to ...
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