What’s the Cost of Doing Business Under Trump?
By Elisabeth Braw, a columnist at Foreign Policy and a senior fellow at the Atlantic Council.
U.S. President Donald Trump has repeatedly touted tariffs as a tool to incentivize business within the country. During his 2024 campaign, he even suggested potentially imposing tariffs as high as 2,000 percent, arguing this would swiftly compel companies to relocate their operations to the United States. However, Trump’s policies are increasingly creating an unstable business environment within the U.S. itself.
Previously, businesses primarily sought political risk insurance for operations in non-Western countries. Now, they’re discovering a need for such protection within the United States.
“The higher the tariff, the more likely it is that the company will come into the United States and build a factory,” Trump said in an October 2024 interview.
The president has repeatedly expressed his enthusiasm for tariffs. In the weeks following his return to the White House, he not only announced broad tariffs on Canada and Mexico—later partially reversed, reimposed, and then suspended—but also declared in late February his intention to impose a 25 percent general tariff on goods from the European Union.
While imposing tariffs to protect domestic producers from foreign competition is a traditional practice, Trump’s use of tariffs is different. As demonstrated by the combined tariffs on Canada, Mexico, and China, Trump views tariffs as a method of punishing countries he chooses. The White House issued a statement saying that Trump was taking action “to hold Mexico, Canada, and China accountable” regarding illegal immigration and the flow of fentanyl and other drugs. Regarding EU tariffs, Trump claimed the bloc was “formed to screw the United States.”
It is difficult to predict which countries or industries will be the next targets. Companies operating with and within the United States are becoming concerned that they’re beginning to consider political risk insurance, as discussions with insurers and other executives have revealed.
Political risk insurance protects companies from politically related risks such as expropriation and war. For instance, in 2021, a company supplying food to the U.S. military in Afghanistan sought an insurance payout after the Taliban seized its warehouse at Bagram Air Base. The Arab Spring also led to numerous claims. Companies typically only require political risk insurance in non-Western countries because liberal democracies typically have a low risk of civil war or unwarranted expropriation.
With conflict, instability, and authoritarian behavior growing around the world, a remarkable 96 percent of multinational corporations had adopted new political risk management capabilities by early 2024, according to a 2024 risk survey by WTW, a global insurance broker. Around 72 percent of these corporations had endured political risk losses.
Political risk is also growing in the United States. The newly formed Department of Government Efficiency’s self-assigned “cleanout” of the government means that companies risk having contracts canceled for political reasons. USAID contractors, for example, were owed $2 billion by the U.S. government, and only a narrow 5-4 Supreme Court ruling on March 5 ensured payment.
Foreign-based companies also face the risk of Trump targeting them to criticize their home governments. In 2021, China took a similar step against Australia after then-Prime Minister Scott Morrison called for an independent investigation into the origins of COVID-19, imposing tariffs of up to 218 percent on Australian wine.
Trump is also openly threatening to target Canadians and Europeans. Companies could similarly be targeted by Elon Musk, a Trump advisor, who frequently attacks those he considers opponents on X, where he has 220 million followers. (“Be quiet, small man,” he tweeted in response to a post by Polish Foreign Minister Radoslaw Sikorski). Such attacks could cause both reputational and financial harm to companies.
Companies are hoping that remaining silent will save them. The New York Times reported on March 6 that “Chief executives alarmed by tariffs that could hurt their businesses are on mute,” referencing corporate America’s silence on actions taken by the Trump administration, despite its leadership disagreeing with those actions.
This is a political risk of an entirely new kind, at least within a Western democracy. Similar effects are happening in the arts world as well. The European School of Ballet has already cancelled a summer program in Las Vegas, citing “the current global situation of political instability, with several negative effects on our planned programs.”
There is also the risk of politically motivated riots and civil unrest. “Companies saw Jan. 6, and it’s not unreasonable to suspect such events could happen again,” a senior insurance executive told me. “They want to make sure they have that insured.”
While underwriters may begin offering political risk insurance for operations in the United States, providing coverage could prove very challenging. Insurance providers depend on their ability to model risk. It’s almost impossible to predict, let alone quantify, the policies Trump will introduce and their potential intended or unintended effects.
As the executive mentioned: “Some U.S. government actions can affect U.S. businesses operating abroad. What we’re hearing from our clients is concern about U.S. government actions affecting their operations abroad. And foreign governments can also decide to retaliate against those actions by the U.S. government.”
Underwriters are not obligated to insure risks deemed excessive or too unpredictable. In countries like Brazil or Iraq, risks are capable of being modeled, and the risks are not so immense as to render underwriting a futile pursuit. But insurers have nearly ceased underwriting political risk in China, where authorities have recently targeted companies, including Bain and Jack Ma’s Alibaba empire, for crossing often invisible political lines.
Political risk underwriters no longer offer coverage in Russia, and they ended coverage in Ukraine weeks before Russia invaded.
This limits Trumpian dreams of opening up business with autocracies. After meeting with Russian Foreign Minister Sergey Lavrov in February, U.S. Secretary of State Marco Rubio declared that an end to the war would be “the key that unlocks the door” for “potentially historic economic partnerships,” the Times reported. However, political promises are not enough to convince businesses. Volatility in Russia is so extreme that very few Western companies would invest there without political risk insurance.
In fact, Russia is too risky even for most underwriters.
“Unless people start feeling totally confident about Russia, I don’t see the market changing,” the insurance executive said. “They’ll need time and confidence.”
The most fundamental principle of business is that companies, including underwriters, prefer normality and predictability. They are in the business of risk, but they won’t approach risks that they can’t price.
Although Trump believes he is acting in the best interests of the U.S. economy by punishing various foreign entities, his impulsive actions risk convincing firms that the United States is no longer open for business.
