International | Canada and the Global Geoeconomic Corridors

In July 2020, we wrote in these pages that Canada is increasingly less immune to global geo-economic conflicts: tensions with China over the extradition of Meng Wanzhou, economic sanctions on pork and canola Canadians and vaccine nationalism in the fight against COVID-19 have demonstrated this^{⁠ 1}.

These conflicts stem from states that are quick to reject trade agreements, impose tariffs and sanctions on various exports, and even resort to cyber espionage to gain competitive advantage in the global economy. Even the Russian invasion of Ukraine is not immune to geo-economic tensions, as evidenced by Moscow’s threats to cut lumber sales to Europe.

A three-speed world

We are therefore not witnessing this irresistible flattening of the world described in the work The World Is Flat, by Thomas Friedman, but the growing tensions with Russia and China do not mean that economic globalization is dying either. The leaders of Moscow and Beijing know only too well that the power of their countries depends largely on the exports made possible by the liberalization of the markets, and that a complete reversal of globalization would generate too great a financial cost for all parties. However, the world is changing: it is currently moving from a system of strong interdependence to a system of managed interdependence, made up of geoeconomic corridors with variable geometry.

By “geoeconomic corridors”, we mean economic zones defined by legal, regulatory and reputational frameworks within which the main transnational economic exchanges (commercial, financial, technological, etc.) are more or less restricted or subject to conflict. These corridors are partly defined by government policies (economic sanctions, for example), but also by NGOs and private sector actors, who, as we see in Russia today, sometimes decide to suspend their activities in countries whose policies they do not approve of.

From Canada’s perspective, at least three types of geo-economic corridors are now salient across the globe. First, relations with countries subject to severe sanctions by Ottawa and its allies, such as Iran, but also Russia in recent weeks, are deployed in a corridor involving obstacles and risks important for Canadian businesses. They must not only respect very restrictive Canadian laws when doing business with these countries, but may also in turn become the target of unfriendly regimes that do not hesitate to use the geoeconomic arsenal (sanctions, freezing of assets cyberattacks, etc.) to harm Canadian economic interests or express their disagreement with Ottawa on issues that are central to them – one can think in particular of the Ukrainian dossier for the Moscow regime at the moment.

Then, a second type of geo-economic corridor links Canada to states where sanctions and restrictions are fewer, but in which tensions and the risk of major confrontation have increased considerably in recent years.

In this corridor is China, an essential economic power with which Canadian companies must do business, even if Beijing’s intentions remain unpredictable and uncertain to say the least.

Finally, a final corridor links Canada to its traditional allies and to other countries where there are no major geoeconomic issues at the moment. This is the corridor with the least obstacles to trade and the least risk of conflict, even if realities such as the rise of protectionism in several Western countries require a certain vigilance on the part of our governments.

Be more agile in a more perilous world

It will therefore be crucial in the future to adjust Canadian policies to take into account these various geo-economic corridors. For Ottawa and Canadian provincial governments, this will mean, among other things, giving more importance to geo-economic issues, placing international trade at the heart of Canada’s national security strategy, and better defining which parts of our supplies must be repatriated to Canadian territory or North America.

For Canadian companies, the recent global geo-economic shocks do not mean that international trade will necessarily be less profitable in the future. The types of corridors mentioned above will continue to offer business opportunities to those who have a fine knowledge of their legal frameworks and who know how to navigate well by avoiding the illegal corridors which have already begun to develop in the world.

In addition, companies will have to be more agile and continue to adopt practices that respect environmental, social and governance (ESG) criteria, but also risk management policies that take greater account of geopolitical and geoeconomic issues. Among the international events of recent years, the COVID-19 pandemic and the Russian intervention in Ukraine illustrate how the world is volatile and can surprise us. Those who adapt to the crises we are experiencing today will better withstand the turbulence to come.