The Eurasia Group has released its annual forecast of the political risks that are most likely to play out over the course of 2018. As a Senior Advisor with Eurasia Group, I’m pleased to share the risks that have the greatest potential impacts on Canadian businesses.
The 19th Party Congress marked a turning point in China’s contemporary history. President Xi Jinping is the strongest Chinese president since Mao Zedong and the country’s political model is now perceived as stronger than it has ever been.
China is setting international standards in areas such as trade, investment and technology. As it does, the global business environment will have to adapt to a whole new set of rules, standards, and practices pushed by China. These diverging regulatory environments will raise the cost of doing business.
The threat of cyberattacks comes both from states (Russia, China, North Korea) and non-state actors (such as Anonymous). Their capacity to wreak havoc is rapidly growing. The prospect today of an economy-shaking cyberattack is real—via the destruction of a critical piece of infrastructure or through forced transparency that cripples the credibility of a leading corporation, bank, or marketplace. Even a takedown of the internet itself is possible (several states have reportedly probed the resilience of the internet’s backbone infrastructure).
Risks exist on several fronts. The outcome of NAFTA renegotiations carries significant market risk for Canada and Mexico. Brexit negotiations between the UK and EU will continue to be difficult politically and uncertain over trade. Protectionism has made a comeback around the world, with walls going up, as well as other new and less visible barriers. This new protectionism will be forced to coexist with a continuing push for regional free trade agreements, and the global regulatory environment will become more complex and contradictory.
The Erosion of Institutions
In many countries in the developed world, popular trust in political institutions has declined steeply. Some of the antiestablishment sentiment is increasingly toxic and is starting to erode the legitimacy of institutions in established democracies. Weakened institutions heighten unpredictability in policymaking, and risk structural instability in the global system. Traditional state-based international relations will also become more and more unstable.