How Trump’s Tariffs Will Turbo-Charge Subscale “Fractal” Companies
If anything shows that we are living in fragmenting times, it is Donald Trump’s decision to levy tariffs on imports from companies all around the world.
No-one can claim to be surprised by Trump’s actions. Prior to his election in November 2024, Trump told an interviewer: “To me, the most beautiful word…in the dictionary today…is the word ‘tariff’…It’s the most beautiful word. This country can become rich with the use—the proper use—of tariffs.”
As he announced the new tariffs in the first week of April 2025, Trump stated that his aim was to “make America wealthy again”. But in taking his unilateral stance, he was challenging the free trade orthodoxy: most economists thinkthat the US will not become richer as a result of this policy.
What is certain is that it will deliver a seismic jolt to the global economy. As Paul Krugman, a Nobel Prize-winning professor at Princeton University, observed: “This is probably the biggest trade policy shock in world history.”
What is also certain is this: it will have a disproportionately negative effect on the large, multinationals who have triumphed over the past 50 years through their ability to capitalize on their size by spreading their costs across markets and thereby benefiting from economies of scale. It was striking how stock markets plunged as news reverberated around the world, with some of the biggest names in US business—especially those with entrenched global supply chains—suffering steep falls in their share price.
Trump’s tariffs will turbo-charge a process set in motion by a confluence of three powerfully disruptive forces. Over the past five years, we have been recording the ways that scale-advantaged companies have been losing market share to a rising number of startup and “subscale” companies who are tapping a new source of competitive strength—something we have termed “fractal advantage”.
These “fractal companies” have prospered because of forces that are creating the conditions for smaller companies to compete with their bigger, scale-advantaged rivals. Individually, these forces would each have had some impact—but not necessarily a radical impact. Together, however, they are truly transformational: in essence, they are not simply levelling the playing field—they are tilting it in favor ofsmaller companies.
The first disruptive force for business is the fracturing of the geopolitical consensus. Trump’s tariff policy is only the latest in a series of geopolitical events that have shaken the foundations of the global trading system: others include the original “cold war” between the US and China during Trump’s first term as US president, the war in Ukraine, and of course the global pandemic and the ensuing supply chain crisis.
A second disruptive force for business leaders is the growing presence of digitization in the value creation process. Increasingly powerful computers, combined with extraordinary advances in artificial intelligence (notably generative AI), mean smaller companies no longer have to suffer any “scale penalty” for lacking the funds to build capital-intensive manufacturing infrastructure or asset-heavy marketing and sales operations. They can simply pay the fees charged by “factory-as-a-service” providers (who can manufacture customized, low-volume, fast-to-market products in micro-factories located close to the customer) and social media and e-commerce platforms (who can help develop deep relationships with customers).
The third disruptive force for business leaders is the rapid rise of new forms of innovation for product development. In recent years, there has been a mushrooming of so-called “deep tech” innovators, supported by a wealth of risk-taking venture capitalists. They are reinventing the very process of innovation: developing new products by taking a problem, redefining it, and exploiting existing science and technologies to solve it. Often, they take a scale-disrupting generative approach rather than the classic scale-intensive extractive approach that involves working down from the existing raw material and modifying it to make the final product.
These disruptive forces have been impacting companies for several years. Yet, there are many business leaders who have not prepared their companies for the storms ahead. If you are among these business leaders, you should see Trump’s tariff policy as a clarifying moment.
There can no longer be any doubt that we are entering a world with much greater fragmentation, where the traditional advantages of global scale will be harder to achieve than before and where growing numbers of smaller, subscale, fractal companies will emerge as powerful competitors.
While scale will remain important (especially in sectors such as Big Oil and Big Tech), every company in every sector will need to find new ways to exploit scale and build “fractal advantage” to stay competitive.
Our advice: You should (1) take the time to really understand the three disruptive forces and work out how they are going to impact on your company; and (2) work out the best mix of scale and fractal strategies for your company