Assessing Geopolitical Risk in a Trump-Driven Foreign Policy Shift: The Impact of Trump's National Security Strategy on Global Equities and Commodity Markets

The 2025 National Security Strategy (NSS) under the Trump administration has redefined U.S. foreign policy, pivoting sharply toward economic nationalism, hemispheric dominance, and a transactional approach to global alliances. This strategic realignment carries profound implications for global equities and commodity markets, reshaping trade dynamics, supply chains, and investor sentiment. By prioritizing domestic economic strength and security over multilateral cooperation, the strategy introduces both opportunities and risks for investors navigating a rapidly evolving geopolitical landscape.

Economic Nationalism and Tariff Policies: A Double-Edged Sword

The Trump administration's NSS frames economic security as the cornerstone of national power, with tariffs, industrial policy, and supply chain reshoring at its core. According to a report by the Brookings Institution, the strategy signals a departure from the Biden administration's multilateralism, adopting a more unilateral stance that conditions support for allies on economic and security reciprocity. This approach has led to aggressive tariff hikes, including a 50% tariff on copper and an average effective rate of 12% on imports. While these measures aim to protect domestic industries, they also risk inflating input costs and disrupting global trade flows.

The stock market has shown resilience amid this volatility. Despite a 20% drop in the S&P 500 following initial tariff announcements, the index has rebounded to near all-time highs, reflecting investor confidence in the administration's trade agreements and Federal Reserve rate cuts. However, the One Big Beautiful Bill Act, which allocates $2 billion for National Defense Stockpile purchases and $5 billion for the Industrial Base Fund, is projected to increase federal deficits by $3.4 trillion over a decade, creating long-term fiscal uncertainty.

Critical Minerals and Energy Transition: Strategic Priorities with Structural Challenges

A key pillar of the NSS is securing critical minerals essential for advanced manufacturing, energy transition, and national defense. The administration has taken minority stakes in mining projects like the Thacker Pass lithium mine in Nevada and streamlined permitting for domestic extraction. These efforts aim to reduce reliance on China, which currently dominates 80% of critical mineral supply chains. However, the U.S. faces physical constraints, such as insufficient reserves of lithium, nickel, and graphite, necessitating international partnerships with countries like the Democratic Republic of Congo.

The energy sector is closely tied to this strategy, as critical minerals underpin renewable infrastructure and electric vehicle production. While the administration emphasizes "friendshoring" to diversify supply chains, long lead times for mining projects and environmental concerns-such as those raised by Indigenous rights groups at Thacker Pass-pose significant hurdles. Additionally, the OBBBA's phaseout of the Inflation Reduction Act's production tax credit undermines long-term competitiveness in clean energy.

Investor Sentiment and Geopolitical Risk: Navigating Uncertainty

Investor sentiment remains cautiously optimistic, albeit with heightened attention to geopolitical risks. The BlackRock Geopolitical Risk Indicator highlights increased scrutiny of U.S.-China tensions, cyber threats, and the administration's transactional foreign policy. While tariffs have tempered inflationary fears, the administration's trade truce with China and legal uncertainties surrounding tariffs have created a complex environment.

The NSS's focus on the Western Hemisphere, including a "Trump Corollary" to the Monroe Doctrine, has also shifted strategic priorities. This emphasis on countering Chinese influence in the region and securing the Panama Canal has redirected military resources from the Indo-Pacific, potentially altering defense sector dynamics. Investors in defense contractors may benefit from increased hemispheric security spending, but the strategy's neglect of traditional allies like Canada raises concerns about long-term strategic coherence.

Sector-Specific Impacts: Defense, Energy, and Critical Minerals

The defense sector is poised to see a reallocation of resources toward the Western Hemisphere, with implications for companies specializing in border security, counter-narcotics, and regional deterrence. Energy firms face a dual challenge: capitalizing on government-backed investments while navigating environmental and regulatory headwinds. Meanwhile, the critical minerals sector is experiencing a surge in public-private partnerships, with the administration's equity stakes in companies like MP Minerals and Vulcan Elements signaling a hybrid model of state and market intervention.

Conclusion: Balancing Risks and Opportunities

The Trump 2025 NSS represents a bold reimagining of U.S. foreign policy, prioritizing economic and industrial strength over global multilateralism. While this approach offers opportunities in sectors like critical minerals and defense, it also introduces volatility through tariffs, fiscal uncertainty, and geopolitical realignments. Investors must weigh the short-term benefits of reshoring and strategic partnerships against long-term risks, including environmental concerns, structural supply chain limitations, and the erosion of U.S. soft power. As the administration's strategy unfolds, a nuanced understanding of these dynamics will be critical for navigating the evolving landscape of global equities and commodity markets.