Geopolitics and Geoeconomics: Trade and Investment Disruptions and Implications

International trade and investment is a crucial channel through which economies and individual businesses specialize, innovate, become more productive, and grow incomes, output and employment while also containing input costs and inflationary pressures through competitive supply.

Today, several factors are combining to dim prospects for trade and investment, posing new challenges for the global and domestic economies and for businesses that have global reach and potential.

• COVID’s impact on both supply and demand continues, with further waves of infection still likely and policy responses and consequences largely unpredictable.
• The Russia-Ukraine war, and sanctions in response, are also likely to have ongoing impact on energy, commodity and product prices and availability, and on transport globally.
• Trade relations between the United States and China remain subject to extra tariffs and restrictions affecting certain goods and investment and even more importantly to intense geopolitical rivalry.
• U.S. trade politics heading into mid-term elections are characterized by broad protectionist sentiment.
• The World Trade Organization (WTO) multilateral framework is not keeping pace with a changing world, driving many countries to forge new rules within regional and plurilateral initiatives that in turn are fragmenting the rule book.
• Increased attention to energy transition and decarbonization and more generally to environment, social, and governance (ESG) considerations can introduce new cross-border challenges, for example carbon border adjustments to align with a domestic carbon price and multi-jurisdictional anti-corruption investigations.
• Close to home, relations among Canada, the United States and Mexico under the Canada-U.S.-Mexico Agreement (CUSMA) are increasingly contentious.

This volatile, disrupted, and highly uncertain international economic environment will require agility and foresight by both governments and firms to anticipate and adjust on an ongoing basis to changing patterns of trade and investment and to evolving supply chain configurations.

Specifically, firms must stay alert to rapid and frequent changes in trade and investment rules and regulatory requirements, including sanctions, border controls, and financial records where they do business. A forward scan on both emerging risks and opportunities should be undertaken regularly.