Top Risks 2025: Implications for Canada

 

IMPLICATIONS FOR CANADA
Canada benefited for decades from an international order conducive to its interests and values. Under the protective umbrella of the United States, Canadians enjoyed freer trade with their neighbour to the south and influence in the multilateral institutions—the UN, the G7, and NATO, among others—that set the global agenda. Canadian officials moved confidently through a world where might did not make right, where democracy, human rights, and the rule of law steadily advanced, and in which they enjoyed privileged relations with the world's democratic superpower. 

In 2025 it will become clear that we are in a new era of global politics: a G-Zero world in which no one power or group of powers is willing and able to drive a global agenda and maintain international order. That global leadership deficit will be exacerbated by an ongoing geopolitical recession—a “bust cycle” in international relations in which core international institutions no longer reflect the underlying balance of global power.

The G-Zero leadership deficit means the prospects for peaceful reform or renewal of the global order are slim. Combined with the mismatch between global power and institutions, it's a recipe for endemic geopolitical instability. That's why “The G-Zero wins” is Eurasia Group's Top Risk #1 for 2025.

A likely new Conservative government as well as Canadian businesses will need to navigate a much more dangerous global environment. For a country used to following rules and often taking its own security for granted, the stark realities of G-Zero will be a rude awakening. Ottawa has already had a taste of what to expect amid allegations of foreign interference by China and India and, more recently, new tariff threats from US President-elect Donald Trump.

Here are some of the key takeaways from this year's top risks for Canada and Canadians. For the full report, please see Eurasia Group's Top Risks 2025.

• Eurasia Group has warned for over a decade about the dangers of a G-Zero world, but that leadership deficit will grow critically dangerous in 2025 amid a deepening geopolitical recession. The cumulative impact will be a weakening of the world's security and economic architecture, the emergence and expansion of power vacuums, more space for rogue actors, and the increased likelihood of accidents, miscalculations, and conflict.
• Trump's return to office with a politically consolidated “America First” administration will accelerate Washington's abdication of its longstanding role as global policeman, champion of free trade, and defender of global (democratic) values. No other country or combination of countries is both willing and able to lead. As a result, the world will become more combustible as we enter a uniquely dangerous period of world history.
• For Canada—a country whose trade, foreign, and defence policies were built on the foundation of American partnership and a US-led global order—the deepening G-Zero will be especially fraught. Not only will Ottawa face considerable pressure from a much less reliable Washington to rapidly increase defence spending, but its other traditional G7 allies are unprecedentedly weak. Canada has few good options in the short term to navigate a much more hostile and uncertain world.
• Over the longer term, Canada will struggle to build and maintain credibility with allies and adversaries alike without a new “hard power” toolkit. But that hinges on a broader foreign policy shift towards a more robust defence of Canadian national interests—something that will not come naturally to politicians and policymakers in Ottawa. Like it or not, however, the world is heading back to the law of the jungle … and Canada will need to adapt quickly to the new global reality.
• “Rule of Don” is Eurasia Group's Top Risk #2 this year, reflecting growing dangers for the US economy and political system from the return of an emboldened Trump to the White House. Although US institutional guardrails remain strong (if somewhat weakened), the incoming administration will pursue the president-elect's personalized policy preferences and political vendettas in a manner that will strain the rule of law and amplify crony capitalism.
• Canadian companies operating in the US will be highly exposed to the arbitrary decisions and impulses of the most powerful man in Washington, and heightened structural volatility in US policymaking will degrade America's business and investment climate. US-Canada relations, meanwhile, will whipsaw according to the whims of the mercurial president, and though the bilateral relationship—like the American republic—will survive the next four years, it will be tested like never before.
• In that context, the breakdown of US-China relations this year—Top Risk #3—will leave Ottawa caught between an assertive Beijing and a unilateralist Washington. Although the Trump administration will expect Canada to fall in line with hawkish US policies toward China—from tariff hikes to export controls and diplomatic and military pressure—it will be less willing than ever to work collaboratively with its northern ally. The US will push Canada to match and mirror its policies, with the ever-present threat of tariffs used as leverage to force compliance.
• Although Canada is behind China and Mexico on Trump's list of trade targets, it is acutely vulnerable to his tariff threats and Top Risk #4 (Trumponomics). While Trump will inherit a robust US economy, his tariff and immigration policies will undermine its strength through higher inflation and reduced growth. A stronger US dollar—bolstered by a Federal Reserve forced to keep interest rates higher for longer—will put further downward pressure on the Loonie, and weaker US demand will weigh on an already sputtering Canadian economy. Add to that the potential for disruptive tariffs on Canadian goods—in the worst case, a US-Canada trade war—and 2025 looks like a year of considerable economic uncertainty for Canada.
• To make matters worse, US-Mexico relations will become much more contentious this year—as discussed in Top Risk #10 (Mexican standoff)—with knock-on effects for the North American economy and the renegotiation of the United States-Canada-Mexico Agreement (USMCA). Already, Trump has threatened 25% tariffs on Mexico if it doesn't stem the flow of migrants and fentanyl into the US and a 100% tariff on all cars imported from Mexico owing to their high content of Chinese parts. Although the USMCA will likely survive, negotiations will be combative, complex, and drawn out … with the real chance that Canada cuts Mexico out of the bargain in pursuit of a better, bilateral deal with the US.
• Relatedly, Eurasia Group's Top Risk #7 (Beggar thy world) highlights broader threats to the global economy flowing from the world's two largest economies, the US and China, as they export disruption through beggar-thy-neighbour tariffs, export controls, and industrial policies. Developed and developing countries face a surge of subsidized Chinese goods just as Trump's tariffs threaten their exports to America, and Canada will be forced to make potentially painful choices as global trade tensions rise.
• Rogue states Russia and Iran take spots #5 (Russia still rogue) and #6 (Iran on the ropes) in Top Risks 2025. Although severely weakened by its war in Ukraine, Russia will continue to pursue hostile, asymmetric actions targeting NATO allies, especially in eastern Europe, while probing Canada's defences in the high Arctic. And while a ceasefire in Ukraine is likely this year, Russia will remain at the centre of an “Axis of rogues” alongside North Korea and Iran.
• Meanwhile, the Middle East will remain combustible in large part because Iran is seriously weakened. The Israeli campaigns against Hamas and Hezbollah, the collapse of Bashar al Assad's regime in Syria, and Iran's internal vulnerabilities increase the risk of uncontrolled escalation this year—potentially including Israeli and US strikes on Iran's nuclear program. In that event, a new Conservative government in Ottawa is likely to line up squarely alongside Israel and the US, further roiling tensions over Middle East politics at home in Canada. 
• The deepening G-Zero will undermine AI governance—Top Risk #8 (AI unbound)—with faltering regulation and disintegrating international cooperation increasing the risk of collateral damage from rapid technological advances. It will also exacerbate suffering in the most thinly governed and forgotten places on the planet—Top Risk #9 (Ungoverned spaces)—where ongoing wars and humanitarian crises will continue to fester. In both cases, a lack of global leadership will eventually visit serious harm on states around the world, including Canada.