EDC’s economics team identifies the social, political and economic challenges facing Canadian businesses, including global protectionism, Brexit and U.S. isolationism.
EDC’s economics team identifies the social, political and economic challenges facing Canadian businesses, including global protectionism, Brexit and U.S. isolationism.
A key policy position of Donald Trump’s presidency is an “American First” approach, which openly advocates for the withdrawal of multilateral institutions, like the United Nations and World Trade Organization, as well as multilateral trade agreements. This poses significant challenges for Canada and could curb opportunities abroad.
With fears that the global economy is inching closer to a recession, Canada isn’t immune to the risks associated with a possible downturn. When the last recession hit in 2008, countries took extraordinary measures to combat it. This time around, there’s less policy room for governments and central banks to respond. Slow growth reduces spending and could impact Canadian companies in several ways.
In recent years, the shift toward populism reached a new level when the United Kingdom voted to leave the European Union and the United States elected Donald Trump as president. With the rise of protectionism, there’s been an escalation in trade and diplomatic tensions, financial turmoil and a negative repercussion for global supply chains. Trade barriers have become a top challenge for Canadian exporters growing and maintaining their business outside of our country.
As America looks inward and withdraws diplomatically from several traditional allies, it’s creating a leadership vacuum that may be emboldening other countries to assert themselves. The void opened by U.S. isolationism could negatively impact Canada. To start, we’ll no longer benefit from U.S. support on such issues as climate change and human rights.
As a glut in global oil supplies builds, it could undermine the economic stability of Russia, Saudi Arabia and other oil producers who developed their entire economies based on oil revenues. For Canada, this will open doors while closing others. For energy businesses working and supporting shale extraction, it could spur other countries to come and tap their basins.
China’s fervent desire for strong economic growth has long been a key policy of its government, which paid off with decades of success. China’s current goals include the elimination of extreme poverty and doubling its economy before 2020. However, the near-term outlook is overshadowed by trade tensions and a major debt overhang from the 2009 financial crisis. As a result, the International Monetary Fund has expressed concern about its economic development trajectory, which could impact Canadian companies doing business there.
Britain is scheduled to formally leave the 28-country European Union on Jan. 31, 2020. Should the United Kingdom leave the EU without an agreement, severe political, economic and market uncertainty could ensue. According to Bank of England estimates, this could cost the U.K. about 5% of its gross domestic product, a more severe impact than in the Great Recession. For Canadian companies in Britain, the financial and bureaucratic costs of operating in the EU could increase.
With low interest rates in many countries around the world, most central banks in emerging and developed markets have reduced rates to stimulate their economies. The risk of this trend of monetary easing is that some countries are taking on too much debt and could end up unable to meet their debt payment obligations, especially if interest rates increase. While a global tightening could result in potentially disastrous results for many, the news isn’t all bad for Canadian exporters and investors.
Dominating the news is the strategic competition between the United States and China. With an escalation in trade tensions, these two geopolitical powerhouses seem focused on extracting the most from the other, rather than propelling the world economy forward. Peacekeeping missions, free trade agreements and international co-operation across myriad issues are taking a back seat. Polarization serves no one in the long run and the negative impacts could be significant.
With the advent of technology and information, we’re flooded daily with negative news and war-torn conflicts. Many global flashpoints, including the Persian Gulf Region, Russia and North Korea, are heating up due to a resurgence of tensions between regional rivals. At the geopolitical level, the decision by the U.S. to withdraw from its role as global policeman, is opening the potential for challengers to the current system.
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