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AI is a key economic driver – unprecedented capital allocation in AI by the US, Europe, and China is redefining competitive advantage and long-term growth trajectories
The resurgence of tariffs is reshaping global trade – protectionist policies are disrupting supply chains, elevating costs, and weighing on economic expansion
Climate risk is now a material financial factor – The escalating costs of extreme weather necessitates capital deployment into climate-resilient infrastructure and nature-based. solutions.
In today’s shifting and rapidly evolving economic landscape, investors are facing transformative forces across multiple sectors. In this month’s edition of our “must-see charts series”, we highlight three major themes that are shaping global economies: surging investment in artificial intelligence (AI); the resurgence of tariffs, imposed by the Trump administration, which are disrupting decades of free trade; and the increasing economic impact of climate-related disasters around the globe. These factors, each with far-reaching implications, require investors to adapt to an economic environment marked by unprecedented complexity.
1. Surging global investment in AI
Evolution of investments in artificial intelligence in the US, Europe and China (2016-2030)1
Historical data are based on consolidated estimates of public and private investments. Future projections incorporate recent announcements and reflect an anticipated trend, but remain subject to adjustments based on economic policies, regulations, and market dynamics.
Artificial intelligence is reshaping industries worldwide, and investment in AI infrastructure and development has reached unprecedented levels. Governments and corporations alike are channelling vast sums into this transformative technology, reflecting its strategic importance and long-term growth potential.
AI is not just a trend but a fundamental driver of economic transformation and as companies and countries race to establish dominance, the AI sector presents substantial opportunities
The United States remains at the forefront, with OpenAI leading the way and significantly expanding their AI capabilities. The recent announcement of the Stargate project, backed by most of the “Magnificent Seven” companies (including Meta, Amazon, Microsoft, and Alphabet), underscores the importance of the race for AI dominance. Stargate represents a collective investment of approximately USD 500 billion into AI infrastructure2 , focussing on advancements in machine learning, quantum computing, and cloud-based AI models – a major investment expected to drive substantial productivity gains across multiple industries, from healthcare to financial services.
On the other side of the Atlantic, in Europe, the commitment to developing AI infrastructure and services has also strongly intensified. At the AI Summit held in Paris in February 2025, French President Emmanuel Macron and Europe stepped of investment in response to the US and China. President Macron announced that France will invest EUR 109 billion in AI initiatives, supporting start-ups, research institutions, and semiconductor manufacturing.
Furthermore, the European Commission has pledged EUR 200 billion to develop four AI gigafactories3, aimed at strengthening Europe’s position in the global AI race and reducing dependence on non-European providers to guarantee resilience and technological sovereignty. These investments reflect the EU’s ambition to close the gap in AI development not only with the US, but also with China’s DeepSeek.
China, too, continues to push forward aggressively, with the recent unveiling of DeepSeek. Presented earlier this year, DeepSeek is positioning China as a leader in AI, boosting numerous domestic sectors as Beijing prioritises the technology for national security, economic growth, and global technological influence. For investors, the message is clear: AI is not just a trend but a fundamental driver of economic transformation and as companies and countries race to establish dominance, the AI sector presents substantial opportunities.
2. Tariff evolution: a brutal shift in global trade policy
Effective tariffs between the US, UK and France, 1900-20244
For much of the past century, Western economies have largely embraced free trade, with tariffs declining significantly since the mid-20th century (see chart 2, above). However, this long-standing trend is shifting as protectionism resurfaces, particularly in the United States.
A historical perspective reveals that tariffs played a central role in economic policy during the 19th and early 20th centuries. In the late 18th century, as the US industrialised, tariffs on European imports surged from 10% to over 50% to protect domestic industries. These protectionist measures dominated until the early 20th century, when President Woodrow Wilson’s administration initiated a shift towards free trade with the Underwood Act of 1913.
From the 1950s onwards, major Western economies (including the US, UK, and France) largely moved away from high tariffs, aligning with multinational agreements like the General Agreement on Tariffs and Trade (GATT) and, later, the World Trade Organisation (WTO). However, this consensus has been challenged in recent years.
Higher tariffs, if widespread and sustained, could not only impact global supply chains but also reduce growth potential across multiple economies
The most notable shift came with President Trump’s 2018 tariffs, which increased effective tariff levels by 2% – a relatively moderate rise. Yet, more recent developments suggest a more pronounced break from free trade. The Biden administration maintained and, in some cases, expanded tariffs, particularly on Chinese imports – citing national security concerns. Moreover, the European Union is contemplating its own tariff measures in response to global supply chain disruptions, and geopolitical fragmentation. This resurgence of tariffs could have profound economic consequences. Higher tariffs typically lead to increased production costs, higher consumer prices, and supply chain inefficiencies. In a globalised world where interdependencies are deeply ingrained, a significant return to protectionism may slow economic growth and exacerbate inflationary pressures.
The risk, as history shows, is that prolonged tariff wars can become recessionary. Christine Lagarde, President of the European Central Bank, has recently warned against excessive protectionist measures, citing the economic contraction seen during the 1930s trade wars as a cautionary precedent.
Higher tariffs, if widespread and sustained, could not only impact global supply chains but also reduce growth potential across multiple economies. For investors, understanding the implications of these policy shifts is crucial. The return of prolonged tariffs could reshape global trade patterns, impact corporate earnings, and influence entire sector performances – particularly in manufacturing, technology, and consumer goods industries.
3. Climate disasters and their economic cost
Weather related insurance losses (1995-2025)5
The economic impact of climate change is no longer a distant threat—it is an immediate reality. As shown on the chart above, insured losses from climate-related disasters have exceeded USD 100 billion annually for the past five years, reflecting the growing financial burden of extreme weather events on businesses, governments, and individuals.
The most recent and obvious example is the California wildfires of early 2025, which resulted in over 180’000 people being evacuated, with total economic damages projected to reach USD 150 billion and estimated insured losses of USD 20 billion. The devastation extended beyond property loss, with significant disruptions to agricultural production and, energy supply, and severe consequences to local economies.
Investments in nature-based solutions and climate-resilient infrastructures will play a crucial role in mitigating future economic losses while supporting long-term value creation
And wildfire risk is increasing globally. The number of extreme wildfires is projected to rise by 14% by 2030, 30% by 2050, and 50% by 2100, underscoring the urgency of adopting new wildfire mitigation and landscape management strategies. Traditional fire suppression efforts have reached their limits, necessitating a shift towards preventive and adaptive solutions. A promising approach lies in the circular bioeconomy, which integrates sustainable land use practices to create fire-resilient landscapes.
By restoring soil health, promoting biodiversity, and investing in nature-based value chains, the circular bioeconomy can reduce wildfire risk while fostering economic growth. Furthermore, integrating climate-smart forestry, regenerative agriculture and sustainable land management into economic planning can enhance resilience to extreme weather events while unlocking new value chains. By replacing extractive industries with nature-based solutions, economies can simultaneously mitigate climate risks and develop new opportunities in construction, textiles, and bioplastics, driving sustainable growth.
For investors, climate change should now be considered a financial risk in itself. As policies and market forces shift towards sustainability, investments in nature-based solutions and climate-resilient infrastructures will play a crucial role in mitigating future economic losses while supporting long-term value creation.
A complex landscape for investors
As AI continues to drive technological revolutions, global trade policies shift towards greater protectionism, and climate-related costs reshape risk models, investors must maintain vigilance, strategic diversification, and an informed perspective on macroeconomic trends.
At Lombard Odier, it is our role to guide our clients through an increasingly complex and volatile economic landscape. For more than 225 years, we have continuously adapted to change, rethinking the world around us, and taking a step back to calmly evaluate, rethink through the noise and provide a fresh investment perspective for our clients.
This is a marketing communication issued by Bank Lombard Odier & Co Ltd (hereinafter “Lombard Odier”).
It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a marketing communication.
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