The international trading system experienced significant disruption in 2019. Ongoing bilateral tensions, with the mounting tariff war between the United States and China at the forefront, generated considerable market uncertainty. A lesser known clash between Japan and South Korea posed risks to the global technology sector. Some residual negotiations produced tangible results, including a revised United States – Mexico – Canada Agreement (USMCA) and a new U.S. – Japan bilateral deal. At an international level, political tensions at the World Trade Organization (WTO) immobilized the institutional mechanics critical to dispute resolution.
Canadian financial institutions have an imperative to interpret and respond to these macroeconomic changes. Trade negotiations can shape the rules for cross-border financial services, ranging from foreign asset purchases to digital banking and data governance. Trade disputes can increase market volatility while dragging down foreign direct investment. Trade barriers or new agreements can pose credit risks for retail and commercial lenders, as impediments to or new opportunities for goods/services exchange affect intermediate and consumer prices and business competitiveness. To understand their consequences for regulatory compliance, market returns, product lines, and aggregate enterprise risk, financial professionals should first familiarize themselves with the major trade developments of the past year and continue to monitor their trajectories in 2020.