The textbook definition of volatile just about says it all—“likely to change rapidly and unpredictably— especially for the worse.” It has been a volatile year, and so was the one before it. 

Cause and effect

Business leaders are accustomed to change—that is the norm, as one never knows what competitors have in mind and consumers are notoriously fickle. It’s when one adds in a series of essentially man-made issues that the landscape becomes hard to navigate. There are currently three motivators for the current volatile climate.

Oil market mayhem

The most recent is the turmoil surrounding the war with Iran. The oil markets have been significantly alarmed as the transportation of oil from the Middle East has been all but shut down. By now, just about everyone has become familiar with the Strait of Hormuz and understands that the bulk of the oil produced in this region has to travel through that narrow waterway. 

Given that the United States is the world’s largest crude oil producer and shipper, it is confusing that problems in the Middle East matter. It is simply that oil is a traded commodity, and the price per barrel is set by the markets and affects everyone’s prices. This is how we get per-barrel oil prices above $100 when they were only between $50 and $60 a few months ago.

Beyond that, the region produces a whole host of products many industries need, including fertilizers, helium, bromine and an alphabet soup of petrochemicals. This is essentially a supply chain issue, and it is currently in total disarray. This means inflation spikes and mass uncertainty regarding when an item will be available. 

The oil markets have been reacting to every rumor of a ceasefire or agreement and the per-barrel price jumps up and down. Nothing is definitive and that leaves a wide range of possibilities­—from a low of $80 to a high of $120. There are too many moving parts to make any kind of accurate assessment. Will it stay there, or will it go back up or further down? That is a complete unknown, as it depends on leaders’ mercurial moods.

Tariffs stay put

The second major motivator is a familiar one—tariffs. The Supreme Court’s decision to back up all the previous court rulings on the use of IEEPA to impose a blanket tariff on the world threw the tariff conversation back to its origin. What system will be deployed now, and for how long? 

The replacement system was Section 122, but it was limited in duration and expires on July 24. It will likely be replaced by Section 301, but that requires investigations. If a country is found violating the provisions prohibiting structural excess capacity rules, they can be hit with high tariffs.

The question when examining structural excess capacity is whether a nation is deliberately overproducing. This may be done to protect jobs or gain some trade advantage as that extra production is then off-loaded to the global market. China has been one of the most aggressive overproducers, but it is a common practice. A nation found to be overproducing will be subject to high tariffs, but it is hard to prove. 

A nation can also be hit with tariffs if it is accused of deploying forced labor to make a product. This is also hard to prove. 

Working out these new tariff systems will be time-consuming and confusing. Most U.S. companies have mixed feelings on tariffs. They know it is possible for other countries to cheat and compete unfairly. They enjoy the potential for some protection, but they also import material and do not appreciate the added costs. Most criticism revolves around the uncertainty as the tariffs constantly change.

China’s ripple effect

This last issue is just starting to emerge and has not had a profound effect just yet, but it will. China has been actively pressuring Taiwan and in April declared a “no fly” zone that prohibited air traffic between Taiwan and trading partners such as South Korea and Japan. This made that business very costly and has affected the U.S. supply chain. 

The Beijing leadership has been actively engaging with opposition parties in Taiwan as a means to exert even more pressure on the Taiwanese government. The United States has been on alert to these moves, but reacting will be costly as it would mean pulling ships from the Middle East. 

Taiwan is the world’s largest chip manufacturer. There is already a chip shortage due to the interruptions in the Middle East, and there is reduced availability for consumer products, electronics and vehicles while chipmakers are focused on producing high-value chips for data centers and the military. 

So far, Chinese threats have been contained, but Xi Jinping has instituted many high-level purges. This included high-­ranking military officers, which may signal a shift in strategy. These had been advocates of an outright invasion, and their replacements seem to favor economic stress through a combination of blockades.

All of the above are the direct result of political decisions, and that makes them all the more unpredictable. They can come out of nowhere, and their duration depends on political calculations rather than any economic consideration. This is what drives business leaders crazy. They can determine customers’ motivations and can study their competitors. They can even gather facts to figure out economic trends, but predicting the actions of political leaders with their own unique agenda is next to impossible.

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