The Impact of the Top 3 Strategic Imperatives on the United States

Geopolitical Chaos

Why

• If the administration changes from Democrat to Republican in the 2024 Presidential Elections, industrial and trade policies will undergo significant shifts in the near and medium term.

Frost Perspective

• While a shift in policy priorities will bolster sectors like oil and gas, pharmaceuticals, and automotive amid reduced regulatory burdens, the renewables segment might face reduced fiscal and policy support.
• Trade restrictions on key import partners for raw materials and intermediate goods will drive up near-term production costs.

Disruptive Technologies

Why

• Industries like healthcare, manufacturing, finance, business services, and logistics are seeing rapid digitization and transformation amid increased utilization of artificial intelligence (AI), the Internet of Things (IoT), and the Industrial Internet of Things (IIoT).

Frost Perspective

• As disruptive technologies transform business models, firms will increasingly demand specialized skill sets.
• Continuous private and public investments in reskilling/upskilling of the labor force will be necessary to drive competitiveness.

Transformative Megatrends

Why

• The share of the elderly population (aged 65+) will likely rise from 19% in 2022 to 23.2% in 2030, reaching 79.9 million.
• At the same time, the youth population (under 25 years old) will likely decline from 83.5 million to 78.9 million.

Frost Perspective

• Increased social security spending burdens will affect the government’s ability to invest in the economic value-added sectors.
• However, the rising share of the elderly population will generate sizable growth opportunities in the silver economy and geriatric service industries.

Scope of Analysis

• Despite tight credit conditions and external shocks, the US economy remained robust in 2023 due to upbeat consumer spending, helping real gross domestic product (GDP) growth reach 2.5%, compared to 2022’s 2.1%.

• In 2024, elevated interest rates in the first half of the year, coupled with weak external growth and slowing consumption domestically, are likely to soften growth to 2.2%. However, the government’s long-term support through policies like the Inflation Reduction Act (IRA), Bipartisan Infrastructure Law (BIL), and CHIPS Act will generate near-term growth opportunities in various manufacturing subsegments, hence capping the growth downside. In an accelerated scenario, with robust policy efficacy and enhanced labor productivity assumed, real GDP growth for 2024 will likely be 3.1%.

• Policy support for manufacturing, green energy, and infrastructure received a massive thrust post-pandemic with policies such as the IRA, Infrastructure Investment and Jobs Act (IIJA), and CHIPS Act. Hence, infrastructure, construction, and manufacturing subsectors such as semiconductors and electronics, automotive and electric vehicles (EVs), and green manufacturing will be critical growth and employment generators in the medium and long term.

• An aging population will result in a decline in labor force participation by the end of this decade. While the rise in fiscal burdens will remain a key long-term risk, rapidly transforming business models amid higher tech integration and a sustainability focus will weigh on the long-term US labor market outlook.

Growth Drivers

• The Biden administration rapidly accelerated fiscal support for key industries such as semiconductors, clean energy, EVs, infrastructure, and high-tech manufacturing. The long-term financial and policy support will drive the nation's investment attractiveness and bolster local manufacturing investments.
• Trade pacts such as the United States-Mexico-Canada Agreement (USMCA) and the US-Japan Critical Minerals Agreement will support US industries by curtailing sourcing vulnerabilities. Nearshoring also significantly cuts down costs for domestic consumers, which will support industrial growth.
• Given the Republican party's policy stance, a shift in administration in the 2024 Presidential elections will establish industries like pharmaceuticals, oil and gas, manufacturing, and banking as the key growth generators.
• Falling inflationary pressures will support consumer and investment demand in the near term, as individuals see a recovery in purchasing power and companies see lower production costs.
• Amid the rapid change in business models due to the rising adoption of disruptive technologies, large and medium-sized US companies will likely spend more on reskilling and upskilling employees. Increased efficiency gains from technological integration improving labor force skill sets will benefit long-term growth.

Growth Restraints