With that shift, geopolitical pressures are intensifying, and the system is now under strain. That’s the paradox. Economic integration has delivered substantial gains and created mutual interests that act as a force for peace. Yet integration creates interdependence and, with it, vulnerabilities. It exposes countries to supply disruptions and to trade or financial choke points in energy, critical minerals or advanced computer chips. And where there are choke points, there is leverage to exploit, as Iran recently demonstrated.
The result is a dangerous feedback loop. As countries seek to insulate themselves from perceived risks, they risk fragmenting the global economy further still. This, in turn, encourages further insulation efforts — through tariffs, industrial policy, financial regulation, export controls or rising military spending.
We have seen such dynamics before. The world’s economy was highly integrated at the turn of the 20th century, at the height of a British-led expansion of trade, capital flows and immigration. What followed was a period of intense deglobalization, coinciding with rising nationalism and militarization — and two world wars. To assume that today’s economic integration — and peace — are here to stay would be complacent.
The global economy has proved remarkably resilient so far. In response to the Iran war, energy markets have adjusted, and financial markets have remained calm. Countries such as China, Japan, Korea and the United States cushioned the disruption by tapping oil reserves or switching energy sources. Despite escalating trade tensions, global trade did not decline but strengthened in 2025. Instead, countries and firms adjusted trade routes and supply chains. Shocks that might once have triggered systemic breakdowns have instead been absorbed.
But don’t mistake resilience for invulnerability. Risks are mounting beneath the surface. Financial systems built on deep integration — notably around the U.S. dollar — could prove harder to sustain in a fragmented world. As countries seek to reduce their trade dependence on one another or, in Canada’s case, the United States, new fault lines may emerge, particularly as rapid technological transformations introduce fresh vulnerabilities around cryptocurrencies, critical minerals and artificial intelligence.
