Hello and welcome back to The Pinsent Masons Podcast, where we try to keep you abreast of the most important developments in global business law, every second Tuesday. My names Matthew Magee and I’m a journalist here at Pinsent Masons, and this week we want to analyse the wide-ranging impact on businesses of Donald Trump's surprisingly comprehensive electoral victory last week in the US. But first, here's some business law news from around the world.

Europe's new VAT rules will change how businesses operate
South Africa establishes grand corruption, prosecuting body and
Online safety code enters into force in Ireland.

New rules designed to digitise how VAT works and harmonise its cross-border operation will change how businesses operate in Europe, according to experts. VAT in the digital age rules will make cross-border VAT reporting fully digital, will make online platforms responsible for more VAT collection and will create a single Europe wide VAT registration process for firms. Tax expert Robert Dever said that the rules will represent a fundamental change in the way in which business is conducted within the EU and reflect the digitalisation of its Member States economies which remains a focus of global tax reform.

A new body to be tasked with investigating and prosecuting grant corruption in South Africa is to be established under a draught law introduced into the country's parliament. Edward James and Vishana Mangalparsad of Pinsent Masons in Johannesburg said the plans for the Anti Corruption Commission (ACC) have the potential to help restore trust in the ability of South Africa's institutions to root out corrupt actors. An inquiry led by former Chief Justice Raymond Zondo set up to investigate alleged state capture during the period of Jacob Zuma's presidency, recommended the creation of an independent anti corruption authority. The ACC has a tightly defined remit, which means it will not be responsible for tackling all corruption in South Africa. Instead, it's to sit alongside the existing national prosecuting authority and does go beyond the purview recommended by Zondo, as his recommendations did not extend to the private sector.

Video sharing platforms headquartered in Ireland now have legal obligations to protect users, especially children, from harmful video and content. The Irish online media regulator has adopted the finalised online safety code, promising to end the era of social media self regulation. Under the new set of rules, video sharing platform services such as those provided by Facebook, Instagram, YouTube and TikTok are required to take appropriate measures to protect users from specific types of harmful online material, including cyber bullying and promotion of self harm or suicide and eating disorders. They're also required to use age assurance to prevent children from encountering pornography or gratuitous violence online and have age verification measures in place. Another measure imposed by the code ensures that parents are given parental controls for content which may impair the physical, mental or moral development of children under 16.

The scale of Donald Trump's electoral victory in the US last week took the world very much by surprise. It looks as though his party will control all the available levers of government, giving him legal and moral standing to act more or less however he pleases. That's a sobering thought, but before we talk about the specifics of how it will have an impact on trade policy and global trade relations, on climate change law and regulation and on how tech platforms are regulated, Edinburgh based public policy expert Mark Ferguson outlines how it is that Trump has acquired this power.

Mark Ferguson: Donald Trump won quite convincingly in the end. For Donald Trump each of those seven swing states broke his way, and that led to a very convincing win in the Electoral College and certainly more convincing than many polls have suggested it could be. The power that that Donald Trump will cast is probably bigger than he did in the first term because he's now going to control both the Senate and the House at the outset of his presidency, and that gives him significant power to progress with his policy agenda and what he wants to achieve with relatively little opposition to challenge or counteract as his policy proposals. I think now in his second term and buoyed by this victory he will be seeking to appoint people who are true believers in the Trump project, who are loyal to him and will enact his policy platform as he dictates to them. That is what this substantial victory provides him. It gives him that power to go ahead and to deliver on those messages and his commitments he made to the voters.

Matthew: So Trump has the power to implement his policies, but what are they? What is his business policy platform? What's he actually trying to?

Mark: So, his platform is around making energy cheaper in the United States, making the cost of living cheaper in the United States, making America self-sufficient, building better infrastructure, almost retrenching from the world somewhat in terms of global trade. He also made a number of commitments on tariffs that will see the US decouple slightly from international partners and all that's designed with creating jobs in America and making the cost of living cheaper for Americans. In some areas that could have positive impacts on businesses in the US and however, in other sectors such as energy, there's going to be challenges where President Trump has said that he will remove much of the federal funding that was available for clean energy projects across the United States, and instead he wants to focus on making America the dominant energy provider in the world again. The focus on that is going to be oil and gas and ensuring that that sector is benefits from the lifting of regulations that have prevented it from operating at what President Trump would view as its full capacity over the past four years.

Matthew: So if Trump can more or less do what he wants, how will that have an impact on how the rest of the world does business?

Mark: It's going to be significant. The UK and the US have obviously enjoyed a special relationship over a number of decades now. The EU and the US have similarly enjoyed productive relationships over a number of decades, and for leaders of allied countries to America, it's going to change the nature of those relationships and perhaps make them more transactional in nature. The EU has long identified competitiveness with the United States is a challenge that it needs to overcome and something that needs to address itself. It's also identified challenges such as investment in defence infrastructure and defence union within the EU and those challenges are going to be even more sharply viewed through the lens of a Trump victory in the US.

Matthew: The US economy is the biggest in the world and is an engine for growth elsewhere when things are going well. It’s approach to trade is profoundly influential, which in the Trump era is causing some consternation amongst observers.

Trump has been crystal clear that he will combine trade and geopolitics by using tariffs to try to protect certain domestic industries and as a tool to try to exert control over foreign leaders. London based trade expert Totis Kotsonis says this is all out there in plain view.

Totis Kotsonis: Trump has already made it clear that he intends to protect the US industry, and how is he going to do that? He will do that by means of, well, primarily by raising tariffs. So he's already on record as saying that tariffs is the most beautiful word in the dictionary and he has already announced that he would put tariffs up across the board in relation to all countries, effectively a blanket 10 to 20% increase in imports to the US and in fact even more in relation to China, 60% in relation to China is one figure he's been bandied about but ultimately tariffs will be used as a massive weapon.

Matthew: Totis says Trump's focus will be on industries where there are lots of American jobs that his administration will want to protect.

Totis: Well, certainly the automotive industry will be affected. Steel aluminium will be affected, so all the industries that the US wants to kind of onshore and promote domestic growth effectively are the ones that we would expect to suffer the most.

Matthew: So, what happens to the world economy when its most powerful and influential constituent part starts slapping tariffs everywhere? Not good things, says Totis.

Totis: The question then is what does that do for the rest of the world? Well, there've already been studies that have been saying that GDP will suffer, that the growth across the globe suffer as a result of raising tariffs in relation to the US. The UK will suffer, the EU will suffer, China would suffer, but also, apparently, the US itself will suffer and there's also concerns about inflation rising because this is all about trying to increase productivity, encourage growth and domestic industry, which is bound to have an impact on inflation. Potentially we could have situations where the number of countries retaliate, so increasing their own tariffs across the board or to the extent that they can and that is permissible under WTO raising times against the US, which is a more complicated piece, but it is doable.

Matthew: Now, you’re not meant to be able to just create or raise tariffs at will – decades of work has built a complex web of rules, mechanisms and consequences designed to keep trading relationships stable, mostly through the World Trade Organisation. For a very long time the trend has been towards fewer tariffs and more open trade. Trump will change all that and the WTO may not be able to do anything about it because the US is hampering its ability to impose its will.

Totis: What happens at WTO level in terms of the impasse we have, and it's been going on since 2019, when Trump effectively refused to consent to the replacement of judges of the appellate body. So, the appellate body is part of the remedies mechanisms and the dispute resolution mechanisms that we have on the WTO level. Members of the WTO can appeal a decision by a panel to the appellate body for it to take a view as to who's right and who’s wrong. That body has not been functioning since 2019. As a result of the decision of the US not to agree to the appointment of new judges, but ultimately the US can simply ignore any decisions and actually exactly because the appellate body is blocked, there can never be a final decision.

Matthew: All of this is happening at a crucial time for another kind of trade instrument, the Carbon Border Adjustment Mechanism. This incoming EU mechanism says that if you make stuff that uses lots of carbon somewhere else you have to pay a border tax to reflect that when importing goods. Totis says that it is not at all clear how the US under Trump will react to what he may see as just another tariff.

It also raises the spectre of another huge area of business policy that might suffer a wrenching reversal in the coming months – climate policy.

Trump is a vocal, committed opponent of climate change action. He has pledged to reverse US laws requiring companies to take action and to report on their climate impact, and to gut programmes set up by US president Joe Biden to create a clean tech industry.
Edinburgh based climate and sustainability specialist Michael Watson says, though, that the impact of Trump’s views and actions will be felt all around the world.

Michael Watson: The impact if Trump does what he says or has been saying he would do will be very significant in terms of climate policy. I think at one level, one can anticipate that there will not be a climate policy in the US, he said he will withdraw from the Paris climate agreement and potentially also the underlying UN agreement, the UN Convention on Climate Change and he said that the US would also, therefore, by virtue of that, would not be participating in the COP meetings annually and therefore be absent from that negotiation and absent from the attempt to kind of coalesce the global coalition to address climate change. So, on the face of it, fairly significant. US is approximately 25% of global GDP and one of the sort of three major regional contributors to climate change. So clearly not having the US at the table is a major, major significance and it will create greater diverges between UK and Europe on the one hand, or Europe in particular in terms of their legislative progress and indeed parts of Asia as well, where we've seen significant regulatory and other progress. Generally in relation to climate, I think the higher the bar is, the more people can reach up further and if the bar is reduced by 25% of it not being there, then it's less easy for others to be more ambitious, particularly in the context of some analysis which might indicate that progressive, if you like, action on climate and progressive and ambitious regulation on climate might impose costs and burdens on business, industry and society in those regions or countries where there is more regulatory change and if the US is removing those requirements the relative competitive advantage or relative competitive situation might lead to those countries where there's more significant regulation becoming less competitive in the short term and this is the kind of classic challenge with climate because in the long term all the data indicates that early action on climate is the cheapest and most effective time to take that action. But that is politics and decision making often is more in the short term.

Matthew: Companies already have to navigate climate and sustainability regulations on activity and reporting where they operate, and increasingly where their suppliers operate to. But while not all countries are the same, there's a general direction of travel towards more regulation with the European Union leading the way. This election result severely disrupts that.

Michael: To meet compliance with these various regulatory regimes for global business is even more difficult because the question of interoperability, the ability to operate globally on a level playing field with the same standards has now got even more difficult. There's now even greater possibility of greater divergence, meaning compliance regimes, etcetera, required just different performance in different parts of world, and in the US perhaps none. And in fact it might be very negative to be promoting ones businesses, sustainable or climate related, or indeed reporting climate related data, it might not even be possible or required. So that whole kind of compliance regime is going to be very difficult and challenging for business and that imposes a kind of cost of doing business and the cost of being global, which is obviously increasing. The businesses that I think that will be impacted significantly will be those or potentially those in the US that will not only not be subject to reporting rules, but it may be possible that in they may be prohibited from producing ESG data and ESG information and there's definitely signs of that in in certain states in the US already and with the Trump regimes commitment to roll back ESC legislation, it is not out with the realms of possibility that they would be prohibited from producing that data. So if you're operating in the US significantly, and in the EU you're getting pulled in quite opposite directions.

Matthew: The situation is polarising dramatically and it's early days, but Michael says that the most important thing that companies can do is to look ahead.

Michael: Well, one very practical thing that we work with clients lawn is horizon scanning. Are you looking ahead for the next 12 to 18 months and working out what regulatory regimes will look like in the context of their business and what they need to comply with and what they need to prepare for. So materiality assessment and scenario planning, planning for different scenarios including known knowns as we have now is a thing that all businesses will be doing and bringing legal and other professional expertise to bear to really war game the new regulatory and commercial regimes that they'll be facing. Those scenarios that they plan and the decisions they make may not be perfect, but they're going to be as well informed as possible and prepare them as effectively as possible for what might be facing them.

Matthew: Climate regulation has grown enormously in recent years and the same is true of technology. From data protection to competition law to artificial intelligence regulators in Europe in particular have raced to keep up with digital developments to keep the business environment competitive and protect citizens interests. And if tariffs and climate regulation will become an EU US fault line, the same is true of technology regulation. According to Amsterdam based technology law expert Wouter Seinen.

Wouter Seinen: The direct impact will probably be more volatility and tech companies will respond differently to that volatility and so will their investors. Early commentaries indicate that Trump is likely going to be pro certain tech companies but not so much pro other tech companies. There's an immense uptick of state laws on to regulate technology, a bit like inspired by things like the Online Safety Act in the UK and the DSA in Europe, but here it's either New York or Delaware or California, or state by state are introducing all these rules. And now with the new president, there will be more precise and probably more ad hoc regulation on technology companies both to stimulate and also to retaliate if you like.

Matthew: Some take companies have bridled at the extent of EU regulation seeking a more free market US approach. But Wouter says the volatility of Trump's approach might mean those tables are turning.

Wouter: The tech lobby has now said oh this wave of regulation in Europe is actually stifling innovation, it's a problem. But what we now see that the DSA the DMA and the AI act, all these broad general European acts, they do create hurdles or compliance burdens, but they are also predictable and stable. Where at the other side of the pond it is rather unclear whether all of a sudden certain platforms or whether new platform laws will be surfacing from presidential degree or not. So if I were an investor in a tech company, I would sort of revisit my position on which markets are actually more favourable and less favourable. There may be sort of counterintuitive things. All of a sudden Europe may from that perspective become a more reliable and interesting partner for businesses that want to build and win a market share in the technology industry.

Matthew: Most of the major tech platforms are U.S. companies, and the US has shown itself to be perfectly prepared to take legal and regulatory action to hinder the development there of major platforms from elsewhere. This kind of regulatory protectionism will only increase under Trump, he said.

Wouter: The Trump administration is probably going to continue singing that song and dancing that dance that the tech industry, the industry at large, but the tech industry in the US should actually be the dominating industry and it should not be jeopardised by platforms from or technology players from other continents. And we've already seen the discomfort with the success of TikTok in the US and special laws actually to try to ban TikTok from the US continent. The regulators in Europe are already quite sceptical and not just the regulators, but even the courts. We've seen that in cases like the famous shrimps decision so there is scepticism about the reliability if you like, of the regulatory safeguards and controls in the US and that fuels concerns of regulators. So it fuels a trend of more protectionist legislation and the Trump administration is very articulate that protectionist approach, but actually the laws that we have seen emerge in Europe are also protectionist because they literally say wherever you are, you will be caught by our regulation, as soon as you target users on our territory.

Matthew: We hear time and again from experts in all sorts of contexts that what the business world wants from law and policymakers is predictability and stability. Well, with Trump, there will certainly be predictability and that he's made it bracingly clear how interventionist and radical he plans to be in business and economic matters. But this may not deliver the other half of that stability. Mark says, though, that businesses can still prepare for a more uncertain future.

Mark: The overall stability of the business environment is still to be determined given that we know what this policy platform is and given that we know his victory was total. What we don't know is the timing of things and how policy will develop over a period of time. Now that could lead to instability in terms of not knowing what's coming or when it is coming and when policy developments are coming. But that stability or uncertainty around a stable business environment can be managed by businesses overlaying their business objectives onto what Trump promised during the campaign and identifying where policy overlaps with our business objectives and where it doesn't, because that then will allow businesses to make the proper plans on how to engage with, understand and influence the direction of travel.

Matthew: Well, that's it from us this week. Thank you so much for spending time with us for listening. Hopefully you're sharing it with your friends and your colleagues and hopefully you're keeping up every day with business law reporting from all over the world at pinsentmasons.com. You can ask us to send you a personalised update every week of stories only in the areas that you care about by going to pinsentmasons.com/newsletter. Until next time, goodbye.

The Pinsent Mason's podcast was produced by Matthew Magee for international professional services firm Pinsent Masons.