The geopolitical situation brings uncertainty

Lenita Toivakka
Director, International Affairs
Finland Chamber of Commerce

Just a year ago the world looked different to us. It was thought that after vaccines the pandemic situation would improve – and the world would open up for trade and travel again. Economic forecasts and companies’ export prospects were positive. The work against climate change got a new lease of life at the United Nations Climate Change Conference in Glasgow, where the key players committed to reducing their emissions. A major concern, however, was the increasingly tense relations between the United States and China. The intensification of Russia’s ambitions for a sphere of power was also worrying, but was not taken seriously, despite the events of 2014. Now, one year later, there is war in Europe.

Russia’s aggressive war in Ukraine has dramatically changed Europe’s security environment. The effects of the war are felt in the form of a food crisis and material shortages as well as global logistical problems. The Ukrainians, who still bravely fight for their own freedom as well as European values, suffer the most of the war. Moreover, the war’s damage to Russia’s own development is huge. The united economic sanctions by Western countries are hitting Russia’s economy and their effects will be long-lasting, targeting Russia’s ability to wage war and halting the country’s technological development. Russia is isolating itself from the rest of the world with its aggressive military operations.

World trade is currently strongly politicized and the relationship between Russia and China should be monitored. The clear common denominator of this partnership is opposition to the United States. The countries are also united by a fear of the spread of the democracy. Russia’s war intensifies the already tense relations between great powers. However, the development of the relationship between China and the United States is crucial for world trade. It will determine how the world economy and global trade will be divided into differentiated blocs. Currently, the trade between China and the United States is at a record high, despite a trade war that is now in its fourth year.

The Chinese market is changing and uncertainty is increasing. China’s isolation has made it an unstable trade partner. China’s harsh covid restrictions, its partnership with Russia and the surprising and sudden regulatory changes have a strong impact on Finnish companies. With China risks on the rise, it becomes necessary for companies to evaluate their dependence on China in the new and tense global context. Now companies must be more careful in anticipating different developments and assess in which countries to invest and operate. Monitoring, evaluating, and preparing for geopolitics have become a permanent strategy area for companies. Even small companies need to assess their global value chains and risks. According to the Finland Chamber of Commerce’s spring 2022 Export Leader Survey, the tense geopolitical situation affects the profitability of up to 95 percent of Finnish export companies.

Finland’s trade with Russia has waned already since the imposition of sanctions in 2014. As a result of the new sanctions, this trade has collapsed sharply and will dwindle to nothing in the coming years. Finnish companies have condemned the Russian war by jointly supporting imposed sanctions. Their commitment has been commendable, and many companies ended their operations in Russia quickly, even though their losses may have been significant in individual cases. There is no way for companies to return to Russia in the coming decades as trust is gone.

I strongly believe that the end of the trade with Russia is in the interest of Finnish companies and society. Our eyes have been opened to the true nature and goals of Russia. Finns’ strong support for NATO membership and the start of the application process will bring Finland more clearly into the Western community of values where our country belongs.

The change in the security policy environment opens doors for Finnish companies. NATO membership has increased interest in Finland, and it offers companies to strengthen trade relations with the United States and other partner countries. Membership in a defensive alliance removes the uncertainty arising from our geopolitical location and significantly reduces our country risk.

The world needs Finnish companies’ know-how, technology, and solutions to global challenges. The current geopolitical situation provides a unique opportunity for Finnish companies to share their know-how and to export it around the world. Finland is known for its reliability, and Finnish companies benefit from this reputation.

In a challenging geopolitical situation, companies need the European Union to open doors and create more competitiveness. The more than forty free trade agreements negotiated by the EU bring companies’ easier access to the markets of eighty countries. The EU’s trade policy must be more active than in previous years, and it must not remain overshadowed by other goals. An active EU trade policy must defend fair competition and sustainable development, actively strive to reduce trade barriers and create strong global value chains.

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