War makes Canada’s trade outlook uncertain

The expression ‘’trade war’’ was coined under the previous U.S. president to describe the trade tensions with China, which resulted in U.S. antidumping duties being imposed on many Chinese imports.

We should be careful with the words we use and, in my opinion, using the term ‘’war’’ was inappropriate. For those who didn’t notice, we’ve since seen two examples of what the word ‘’war’’ means with the conflicts in Ukraine and Palestine. These are real wars happening today in front of our eyes, live on TV and social media, and terrorists filming their actions, with the objective of broadcasting them.

This is in addition to ongoing localized conflicts in Syria, Yemen, Sudan, Myanmar, among others. The impact on international trade is real: higher costs, insecurity, disruptions, a slowdown in investments in production and exports, lower growth rates and hardship for civilian populations.

The last decades brought globalization and freer trade, generally leading to improved economic well-being, but the world has now entered a new era, where geopolitics is bringing a new kind of trade protectionism, if not economic isolationism.

Trade agreements lose favour

Free Trade Agreements are no longer the flavour of the day, as nearshoring, friend-shoring and security issues prevail. These conflicts lead to trade complications by way of sanctions and export/import controls. This is definitely the case with Russia, but also with China: consider the U.S. law fighting against forced labour, specifically targeting imports from the Chinese Xinjiang region, where the Uyghur population is persecuted. Canadian manufacturers who export to the U.S. must ensure they have no direct or indirect inputs from that region. [See page 26 for the full story]

Globalization can take on a whole new meaning as well: just as 102 countries lost citizens in the horrific 9/11 attacks, more than half of the estimated 240 hostages taken by Hamas have foreign passports from 25 different countries.

This new reality is affecting importers and exporters. Knowing both our suppliers and our customers ensures visibility and traceability of our supply chain. For example, since Canada has banned the importation of steel and aluminum from Russia, when a Canadian company purchases aluminum products from any supplier worldwide, it has to make sure its vendors have not sourced their raw material from Russia.

Our exporters can no longer sell ExWorks, leaving all exporting, documentation and shipping responsibilities to the purchaser, and turn a blind eye on the ultimate destination of their products. We have to know our customers and do due diligence on the end user, making sure our exports don’t end up in the wrong place.

The world seems to be at a turning point, with democracies and the rule of law losing ground worldwide and a new world order emerging. We’ve seen how many countries support Russia, directly or indirectly: not just China, India, South Africa or Brazil, but all the despotic countries in Africa, the Middle East and South-East Asia. We see demonstrations in support of Hamas around the world, and even at U.S. universities, turning into anti-Western protests. Several African countries are cozying up to Russia, inviting Russian mercenaries to provide security, like in the Central African Republic or Mali.

These developments are concerning for Canadian mining companies operating in these countries. And all this is leading to a more fragmented world, where doing business and trading goods gets more complicated, if not more dangerous.

Canada’s international merchandise trade has been recovering well from the pandemic: our exports were up 2.7 percent in September, with energy contributing the most to the gain (10.67 percent), while our imports rose 17 percent. Overall, our international trade has now surpassed pre-pandemic levels.

The elephant next door

But in spite of the various free trade agreements we signed over the last few years – CETA with the European Union (and extended to the U.K.) and the Trans-Pacific Partnership with 10 Pacific countries, including Japan – 757 percent our exports still go to the U.S. and over 507 percent of our supplies come from there. It seems like no matter how hard we try, we can’t diversify our markets and still depend largely on our Southern neighbours.

In the end, although world tensions and geopolitics matter a lot, what will impact us the most is what is going to happen in the U.S., where polarization, disinformation and protectionism continue to grow. There is a strong chance that the 45th President will get elected again, and a Republican party candidate is openly in favour of building a border wall with Canada.

We should be very worried about the populist trade skepticism in Washington, prevailing both on the Republican and the Democratic side. We have an example of that, with President Biden recently announcing that the U.S. was pulling out of negotiations under the Indo-Pacific Economic Framework Initiative (IPEF).

With all of this, the outlook for trade in 2024 is very uncertain. Canada is a resource-based economy but to export our resources, our minerals, our grain, our forest and other products, we need a peaceful world order. With all these conflicts, let’s hope that the good guys will win and not the bad guys, leading to a more peaceful and orderly world.