Megatrends impacting US infrastructure and businesses

March 2025 | SPOTLIGHT | BOARDROOM INTELLIGENCE

Financier Worldwide Magazine

March 2025 Issue

The US business and regulatory ecosystem is undergoing a transformative sea change affecting all aspects of the economy. The Trump administration, which represents the polar opposite of most of the policy ideals of the Biden administration, is already hastening certain shifts in governance and modifying the directional tide of others. With control of both houses of Congress (albeit by slim margins) and, for all practical purposes, of the increasingly politicised Supreme Court, the Trump administration has a tremendous initial political advantage in enacting its desired policy changes.

As an initial matter, the size of US federal administrative agencies will be dramatically reduced, and agency decision making will be restricted, especially in agencies such as the Environmental Protection Agency (EPA), the Securities and Exchange Commission (SEC) and the federal Departments of Energy, Defense, Interior, Health, Labor and Education. In his inaugural day executive orders, President Trump rolled back a slew of his predecessor’s policies and initiatives on energy, the environment and immigration, and put a pause on pending new federal rules for a period of reassessment.

Coupled with the Supreme Court’s dismantling of deference to federal agencies in a series of rulings last summer (with more on the docket this year), policy decisions are expected to be driven more from Congress or the judiciary than from federal agencies. We can expect a tsunami of litigation and regulatory unravelling, reducing investor certainty as businesses look for strategies to navigate during the transition.

We can also expect tremendous activity at the sub-national level in reaction to the president’s policies and actions dismantling federal agencies and programmes. Attorneys general in both red and blue states have already been taking aggressive action in organised opposition to federal policies. There is a maxim in the US that when Congress is gridlocked or polarised, the states become more active. This will also carry down to political subdivisions, including cities and counties, depending upon ideology.

These disruptions take place while both the federal government and companies alter their approach to environmental, social and governance (ESG) policies and practices and diversity, equity and inclusion (DEI) initiatives. The president has directed an end to federal DEI programmes. Meanwhile, companies, under pressure from investors and customers, have been quietly rebranding ESG and DEI commitments over the past year, focusing instead on sustainability and bottom-line targets. It is unlikely that ESG metrics, by whatever name, will cease to be considered entirely in company operations and transactions. They are important to deal valuation because of the measurable correlation between ESG-related practices and company performance. ESG also will continue to be required, tracked and reported in many other countries, and so will continue to be important for companies operating internationally.

Of course, it is early days. It will take time for most of the administration’s new measures to fully take effect, and there will invariably be roadblocks in the form of Congressional action, agency-specific processes, funding, lawsuits, and so forth. There are as many predictions on what the next four years will look like as there are question marks. Nevertheless, there are several additional mega-trends, both domestic and global, that will influence how businesses respond and the directions they choose to take.

Global trends impacting US companies

Sweeping changes in geopolitics are impacting the business and investment decisions of companies in the US, as elsewhere. The trend away from globalism to regionalism and nationalism is not unique to the US. War and jagged and shifting alliances have ripple effects throughout economies around the world. President Trump appears to be dedicated to implementation of significant tariffs. This will likely exacerbate threats of trade disputes, supply chain disruptions and competition over access to critical minerals and other essential resources, adding complex layers of risk even to straightforward transactions.

Population growth and urbanisation continue to be significant trends, and sustainability remains a global priority. At the same time, jobs, energy security, trade and economic development will be key drivers, with costs prioritised over reductions in emissions.

Climate

In addition to reversing numerous environmental regulations, President Trump has ordered withdrawal of the US from the Paris Climate Agreement. These actions will be cheered by some, however companies throughout the economy have already made substantial investments in recent years to retool operations to meet the requirements of the now eliminated rules and are unlikely to completely reverse course at this point.

Importantly, the effect of natural disasters because of a changing climate will continue to be relevant for business decisions. Climate remains a concern among shareholders, states and nearly half of Congress, and has a clear effect on company bottom lines.

The impact of turbulent weather on gross domestic product (GDP) is dramatic. Reports indicate that the sum total of the nine most significant weather events in the US last year exceeded $500bn, nearly 2 percent of GDP, and this year is on track to surpass that figure. The extraordinary destruction caused by the California wildfires in January is the costliest natural disaster in US history to date.

The massively disruptive effects of such events impact everything from energy use and demand, insurance, housing, communications infrastructure, transportation, and so forth, and strain federal disaster relief funding as well as state and local budgets. There will be investment opportunities for private companies to harden US infrastructure, which is unable to cope with disasters of the magnitude we are seeing, but it is unclear what role the federal government will play in supporting such efforts.

Artificial intelligence

Artificial intelligence (AI) is a megatrend that, although in its infancy, is making its impact felt in a profound way. With the ability to disrupt and transform entire industries, the deployment of AI will involve some growing pains, as is the case with the adoption of any revolutionary new technology. Foremost among the challenges currently facing AI developers are the potential for abuse, job losses and supply constraints, including energy supplies needed to power AI, which may slow deployment.

The US will likely go light on regulation of AI. AI has the potential to optimise business operations and increase productivity across sectors. Transportation, manufacturing, energy, healthcare, finance and agriculture all represent opportunities for AI applications. The tech industry itself will also present many opportunities for investment and growth.

Tremendous increase in electricity demand

After nearly two decades of flat demand, the US is experiencing an explosive surge in demand for power supply that is dramatically outpacing additions of generation and other power infrastructure.

Datacentres to power AI, electrification and a domestic manufacturing renaissance are all fuelling this huge increase in demand, which can only be met with a multi-resource solution. Some generation resource retirements are being delayed, while mothballed units, including decommissioned nuclear units, are coming back online, but this is nowhere near enough.

Natural gas has steadfastly remained a key component of the US energy supply portfolio. The Trump administration’s declaration of an energy emergency will pave the way for natural gas to retain this prominence.

Massive investment is needed in transmission and distribution. Transmission construction is exceptionally slow, and expansion of distribution systems is constrained by a severe transformer shortage.

Finally, a shortage of skilled labour is also impacting the rate at which electricity infrastructure is built. AI will have a role in solving some of the demand growth challenges, but the electricity sector is facing significant losses of institutional knowledge as personnel retirements outpace the onboarding of new talent.

Uncertain US energy landscape

President Trump’s ‘Unleashing American Energy’ executive order signals renewed emphasis on fossil fuels, although it is not a given that US oil & natural gas production will increase dramatically beyond current levels. US natural gas production already represents approximately 25 percent of global output, even with the Biden administration’s pause on liquified natural gas exports. But the shale plays that have allowed for prolific production of oil & gas over the last decade are now mature, and the marginal cost of recovering additional resources is increasing. Even with loosening of regulation and opening of federal lands to production, market conditions and current economics may not support dramatic increases.

Additionally, tariffs and global supply chain issues may negatively impact the domestic oil & gas industry. If input costs rise, production and refinery costs will increase, which would increase costs of gasoline and diesel – an outcome that the president campaigned to avoid.

Tariffs would also raise costs for the solar and wind industries, although we may see expansion of nuclear and hydrogen. At least one automobile maker has announced its intent to focus on hydrogen vehicles rather than electric vehicles (EVs). With the new administration’s de-emphasis on EVs, others may follow suit.

While there are questions about the future of the infrastructure legislation passed by the previous administration, there was a flurry of Inflation Reduction Act (IRA)-funded investment in the last quarter of 2024, and the IRA supported a wide range of technologies and manufacturing, which the current administration has an interest in maintaining.

Intensified cyber security risks

Cyber attacks on businesses and infrastructure, cyber crime, sabotage and espionage, often sponsored by state actors, have become everyday events. More organisations relying on AI to detect suspicious activity means more devices are interconnected to the grid. We can expect to see an increase in sophisticated attack methods that exploit the vulnerabilities presented by these new technologies and devices. Many do not have security built in or for the purpose for which they are ultimately deployed. Instead, security features often are layered on after the fact, which creates additional risk for underlying data and assets. Additionally, as use of cloud-based technologies for cost savings becomes commonplace, defence perimeters are eroded and risks change.

The above represent but a few of the major trends that will impact business and investment in the US in the foreseeable future. In short, we can expect rapid, tumultuous change and intense backlash, with an extraordinary amount of litigation and disruption of relationships, international and domestic. All interested parties should batten the hatches and prepare for heavy and confused seas.

Clint Vince is the founder and chair of the US Energy Practice and Jennifer Morrissey is counsel at Dentons. Mr Vince can be contacted on +1 (202) 408 8004 or by email: clinton.vince@dentons.com. Ms Morrissey can be contacted on +1 (202) 408 9112 or by email: jennifer.morrissey@dentons.com.

Clint Vince and Jennifer Morrissey

Dentons