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Marc Miller, minister of Immigration, Refugees and Citizenship, hands small Canadian flags to 53 new Canadian citizens representing 22 diverse nations, at a special ceremony at Canada Place, on Oct. 12, 2023, in Edmonton, Alberta.
HARD NUMBERS: Small towns get big say in immigration, Canada faces arms export lawsuit, Red Sea attacks push up shipping costs, Hotel California suit gets checked out
18: Over the next 18 months, Canada will expand and make permanent a pilot program that gives small towns a say in where immigrants can settle. The program has already resettled close to 5,000 foreigners in rural villages and small towns struggling with labor shortages.
21 million: The Canadian government is facing a lawsuit alleging that $21 million worth of Ottawa’s arms exports to Israel are illegal. The plaintiffs – the Canadian Lawyers for International Human Rights and a Ramallah-based non-profit called Al-Haq Law – allege that arms exports to Israel since Oct. 7 violate Canadian laws that prohibit the sale of weapons that could be used in human rights violations. Ottawa says all exports since Israel launched its assault on Gaza have been “non-lethal” equipment.
1,000: The cost of shipping goods from India or the Middle East to North America is about to go up. Global shipping giant Maersk has raised prices along those routes by $1,000 per container, a hike of around 20%. Houthi attacks on commercial ships in the Red Sea have forced companies like Maersk to take much longer routes around the Cape of Good Hope, which adds at least 15 days to the journey.
3: Well, three lucky guys in New York won’t be “prisoners here of their own device,” or any other device, as it happens. Authorities have dropped charges against a trio of men accused of trying to sell a stolen notepad with handwritten lyrics to the famous Eagles tune “Hotel California.” The pad was swiped from the Eagles’ archives by a biographer in the 1970s and sold to one of three accused men for $50,000 in 2005. Prosecutors said a newly released cache of emails cast doubt on the fairness of the case and asked a judge to drop it.
After Super Tuesday, US elections inch closer to Biden vs. Trump redux
Ian Bremmer shares his insights on global politics this week on World In :60.
Any surprises from Super Tuesday
Yeah, I was surprised that Nikki Haley got Vermont. Honestly, I thought that she'd get swept by Trump. Though Vermont is a tiny, tiny little state. It still counts, but she's still out. She's, of course, suspended her campaign and that is not a surprise. And Biden beat undecided and Dean Phillips, who is basically the equivalent of undecided, pretty decisively in all of his states. So, yes, unless something happens health-wise to either of the candidates over the next months, it is Biden, and it is Trump, and that is it. And we've known that for a good long while now. It doesn't feel so super. It's not what everybody wants, but we still have months and months and months in the world's longest and most expensive election in the world. Yet one more reason why the United States is the most powerful and super dysfunctional democracy.
Is the Red Sea turning into a Houthi stronghold?
I wouldn't say that the Houthis are significantly degraded in their military capabilities by the United States and the UK over the last month now. They are not getting the same level of support, intelligence wise, from the Iranians that they were in previous months. So they are still getting the weapons. Some of those weapons are getting interdicted by the United States and allies. But they are still engaging in strikes in the Red Sea. And that, of course, is making it harder for ships to get through. And it's increasing costs on commodities and it's disrupting supply chains. That's where we are. That's likely to continue. But again, I wouldn't call it a stronghold. The one country that's really hurt in all of this is Sudan, which is experiencing the worst humanitarian crisis in the world right now. And it's made worse by the fact that you can't get any aid through the Red Sea because the Houthis are blocking it.
As the Israel-Hamas war nears the five-month mark, is a cease-fire likely?
Well, Hamas is demanding a permanent cease-fire as part of the terms of getting an agreement with Israel that is absolutely not on the table. Can we get a short-term cease-fire, a six-week cease-fire? I am still optimistic, but I'm telling you, it is getting more challenging. And if Netanyahu is really angry at Benny Gantz for being more solicitous with the Americans and the Brits, and traveling to those countries to engage in diplomacy when Netanyahu told him not to go and when he told the Israeli embassy in those countries not to support him, the potential that you end up not getting a deal because of the Israeli dysfunction in their governance and Hamas continuing to kick the can and put ideas on the table that are absolutely unacceptable to the Israelis, that makes it harder. So I do think that the potential is all falls apart, is creeping up. But if you make me bet by next week, I still think on balance we get a deal. Anyway, let's be hopeful for that.
The beach, Red Sea State, Port Sudan, Sudan.
Sudan’s lost sea access worsens humanitarian disaster
Since fighting between rival military factions in Sudan erupted last April, nearly 8 million people have been displaced, and 24 million require urgent food aid. But the crisis now may begin to beggar description as the country loses access to its Red Sea coast and migrants stream across its borders.
Refugee influx. Over 400,000 Sudanese refugees have fled to Libya, where they face long waits for registration, leading many to turn to smugglers to attempt dangerous Europe-bound sea crossings. Their first destination is Italy, with nearly 6,000 Sudanese refugees arriving there in 2023.
Numbers are expected to soar this year, prompting Italian Prime Minister Giorgia Meloni to urge support for investments designed to disincentivize migration. Meloni unveiled a plan last month to enhance energy cooperation with African states and assist them in areas including health and education, at a cost of 3 million euros annually for four years.
Impact of Houthi attacks. Houthi attacks in the Red Sea have cut off Sudanese ports and are disrupting aid shipments, forcing humanitarian agencies to reroute deliveries at significantly higher costs. Some shipments are delayed, others are stuck altogether, and still more face exorbitant air-freight costs. Aid workers describe the situation as "catastrophic" and fear mass starvation is imminent.Oil tanker Marlin Luanda has caught fire 60 nautical miles southeast of Aden in Yemen after a missile attack by Houthi fighters based in Yemen.
Friendly fire signals Houthis are shooting blind in the Red Sea
On Monday, Yemen’s Houthi rebels fired ballistic missiles at a ship bound for Iran, the militia’s main supporter. Would the Houthis really target their patrons in Tehran?
Almost certainly not. There’s no evidence to suggest a rupture between Iran and the Houthis, who have been attacking ships in the Red Sea in hopes of increasing global pressure on Israel to stop its assault on Gaza.
Rather, according to Eurasia Group’s Iran Expert Gregory Brew, the attack shows that the Houthis may be simply taking a different tack. “Houthi attacks may become more indiscriminate,” says Brew, “hitting ships they don’t intend to hit, or targeting ones with more sensitive cargoes.”
Firing blind(er). Iran recently relocated the surveillance ship that provides intelligence to the Houthis to Djibouti to avoid US attacks, limiting the Houthis ability to identify suitable targets and making it more likely that missiles will be mistakenly fired in the future.
Less precision in Houthi strikes will only further aggravate concerns about security in the Red Sea, a major global shipping chokepoint. See our recent Graphic Truth on the goods and commodities most affected by the Red Sea crisis.
Graphic Truth: How does Red Sea chaos affect your wallet?
Attacks on commercial shipping by the Iran-backed Houthi rebels in the Red Sea have thrown yet another wrench into global trade, which has already struggled in recent years due to the COVID-19 pandemic and the war in Ukraine.
The Red Sea is one of the busiest shipping lanes in the world, accounting for 30% of global container traffic. Due to the recent chaos, over a dozen shipping companies have rerouted their vessels around the tip of Africa – driving up costs and delays. This could also mean rising consumer prices at a time when inflation is already painfully high.
The US and its allies have made efforts to thwart Houthi attacks on shipping, but the Yemen-based militants have remained defiant. As recently as Tuesday, the Houthis fired multiple missiles at two ships in the Red Sea.
These are the commodities impacted by unrest in the Red Sea region.
Mark Carney sees more problems than solutions emerge from Davos
Davos is a good place to recognize problems but not such a good place to solve them, according to Lord Mark Malloch Brown, a British politician and diplomat who was in the Swiss Alps this month. “A new generation of modest, listening and empathetic leaders is needed – the antithesis of Davos Man,” he tweeted.
The World Economic Forum has steered so far to the north of public opinion that it is now being used as a punchline – the New York Times noted that “the Davos Consensus” is now a counter-indicator of what is likely to happen. “Trump is already the president at Davos — which is a good thing because the Davos consensus is usually wrong,” said Alex Soros, son of George and chair of the Open Society Foundation, on a panel at this year’s forum.
Yet, there is a reason why 3,000 of the world’s most powerful people make the mid-winter trek to Switzerland every year and line up in the cold to pass through security outside the Grandhotel Belvédere: It’s valuable to understand what the global elite is thinking and to recognize the many problems the world is facing.
GZERO Media caught up with Mark Carney, former governor of the Bank of England and Bank of Canada, who now serves as chair of Brookfield Asset Management and Bloomberg Inc. (as well as acting as a UN special envoy on climate change), to hear what he picked up in Davos.
Economic optimism
On the global economy, the general feeling was of a resilient US economy contrasting with a stagnant Europe, particularly as Germany goes through a historical industrial restructuring moving away from a model built on cheap gas from Russia and exports to China.
The general outlook for China was bearish, with the downside of its ongoing real estate adjustment outweighing the boost from China’s growing competitiveness in electric vehicles and clean energy and its efforts to rebuild exports at a time when supply chains are being “de-risked.”
Premier Li Qiang told Davos that China’s economy is open for business, but Reuters reported that investors who attended a closed-door lunch with him remained skeptical about China’s charm offensive.
This points to more stimulus, Carney said. Indeed, Bloomberg reported last week that the Chinese government is considering a rescue package for slumping stock markets (the CSI 300 was down 11.4% last year, its third year of negative growth, while Hong Kong’s Hang Sen was down 14% in 2023).
On monetary policy, Carney said the expectation among many attendees was that interest rates have peaked but that there was only limited appreciation that the pace of reductions may be slower than the market has been pricing. During Davos, market expectations were that the Fed would begin cutting in March and then cut again another four or five times this year. But Carney believes the Fed will probably wait until June to begin cutting, followed by another one or two cuts this year. “However, if that’s because the US economy is stronger than expected, it would be net positive,” he said.
Global crises
Geopolitics weighed heavily in the Swiss Alps. While US-China relations appear to have stabilized in the short term, the Middle East conflict was widening alarmingly. Reuters reported that there were no practical advances on a Palestinian state, or even a cease-fire, at Davos.
The head of the Palestinian Investment Fund estimated that $15 billion would be needed just to rebuild houses in Gaza. Arab states said they would not fund reconstruction until there was a lasting peace, by which they meant a Palestinian state.
Yemeni and Iranian officials told Davos audiences the attacks in the Red Sea would not stop until Israel ended the war in Gaza. The CEO of oil giant Saudi Aramco warned that the world might see a shortage of oil tankers if the attacks continue, forcing shippers to choose longer alternative routes.
Bankers warned that increased shipping costs and the possibility of an oil price rise could prove inflationary. And attendees took note of the comments of Saudi Arabia’s Prince Turki al Faisal that “the present leadership of Hamas, the PLO, and of Israel should be excluded from any participation in any future political role.”
Good AI vs. Bad AI
AI was everywhere, with businesses focused on how to implement it, first in basic administration and more profoundly in re-engineering the production, sales, and marketing. The core question of whether workers will benefit — and when — was more hotly debated. Some, including the IMF, saw widespread disruption to jobs (up to 40% according to the Fund). The techno-optimists pointed to the ability of AI to re-skill workers rapidly and past experiences with major technological changes that belied the ‘lump of labor fallacy.”
Carney felt that AI would begin to have major impacts on productivity and growth by the end of the decade and that, history teaches, it would take a comprehensive response of business, government, and academia to ensure that workers share in the benefits.
Climate change
Coming less than two months after what was regarded as a business-heavy, successful COP28 in Dubai and with AI dominating much of the discussion, the climate change debate was relatively muted. But Carney said it would be a mistake to consider that the transition has been relegated down the agenda.
He said that it is now so core to the fundamental business model of most companies that it has become embedded as a driver of competitiveness.
Carney noted that five years ago, $500 billion was invested in the transition; last year, that number was $1.8 trillion, nearly double what was invested in oil and gas. The challenge is that this number needs to more than double again to about $4 trillion by the end of the decade.
He said that the transitions toward clean energy and AI actually work in tandem since, while AI is relatively capital-light, it requires a lot of data and computing power, which in turn requires clean energy. And AI solutions will help with optimizing grids, heating and cooling systems, and even supply chains.
It was noticeable that the backlash against Environmental, Social, and Corporate Governance, or ESG, meant it was rarely mentioned in Davos. Attendees like Canadian Deputy Prime Minister Chrystia Freeland were more focused on the new buzzwords – “supply chain resilience” – trying to convince investors that Canada has the critical minerals and clean energy they need, as businesses try to diversify sources away from China.
Sustainability is now about “resiliency building” that contributes to profitability, not just altruism.
Milei’s message
Javier Milei, the new Argentinian president, burst onto the main stage at Davos like an arsonist with a blowtorch, lambasting the proponents of state intervention and concluding with the rallying cry: “Long live freedom, damn it.” He said the Western world is facing a significant threat because its leaders have been co-opted by a worldview that leads to socialism and economic deprivation.
“We are here to tell you that collectivist experiments are never solutions to the problems that affect citizens. Trust me, no one is better than Argentina to provide testimony on this,” Milei said.
At the time of Milei’s inauguration, annual inflation stood at 143%, the currency had plunged, and four out of 10 Argentines were living in poverty. He has promised radical reforms, including deregulation and devaluation of the currency, and there was no evidence that he was prepared to dilute his agenda in his speech.
He was scathing about “neo-Marxists” who have “co-opted the common sense of the Western world” when it comes to the climate change agenda and said he considered all talk of “market failure” to be an oxymoron.
Carney has considerable experience in navigating market failures, having been in the Cash Room meeting in the US Treasury as Bank of Canada governor during the financial crisis, alongside other G7 finance ministers and central bankers, when the decision was reached to backstop the banking system with liquidity to prevent a repeat of the Great Depression.
“All ideologies are prone to extremism, and capitalism loses its sense of moderation when the belief in the power of the market enters the realm of faith,” he wrote in his book, “Values.” “There are no libertarians in a financial crisis.”
But he said he found Milei’s speech to be entertainingly provocative. “It was good theatre and raised some important issues,” he said, particularly his praise for entrepreneurs and his assertion that state control does not depend solely on owning the means of production but can include regulation. Carney noted, however, that Milei appeared oblivious that he was speaking to some of the world’s most successful entrepreneurs (such as Bill Gates), few of whose actions echo the “Atlas Shrugged” school of poverty elimination.
Carney concluded that, “where you stand depends on where you sit,” and that Milei’s vehemence was undoubtedly influenced by a long history of high levels of state intervention and indebtedness in Argentina.
After his speech, Milei sat down with International Monetary Fund Managing Director Kristalina Georgieva to discuss Argentina’s debt problems. He remained defiant: “Free enterprise capitalism is the only tool we have to end hunger and poverty,” he said.
Milei will have to face down entrenched opposition from those who rely upon rents from the state apparatus if he is to rid his country of the unwanted tag of the “Argentina paradox,” the world’s most glaring example of a developed economy that went backward.
The Galaxy Leader cargo ship is escorted by Houthi boats in the Red Sea/
Red Sea headwinds: Will they hurt global trade?
In Davos, Yuvraj Narayan, the deputy CEO of Emirati logistics company DP World, warned that the cost of goods heading to Europe from Asia will be significantly higher because of the Houthi attacks on shipping in the Red Sea. With inflation finally starting to ease, the prospect of consumers once again feeling the pinch is unwelcome. But will they?
There are certainly signs that the disruption is persuading shippers to add thousands of miles to their journeys by heading around the Cape of Good Hope, rather than braving the Red Sea and Suez Canal, a detour that adds up to at least seven days from Asia to Europe and an extra million dollars in fuel.
Container traffic was down almost 70% on the Red Sea route in December, according to the Kiel Institute for the World Economy. The knock-on effect saw EU exports fall 2% and imports drop 3.1% in December, while global trade was down 1.3% overall. Also, standard shipping containers have more than tripled in price as they start to become in short supply.
The pain is being felt by manufacturers waiting for parts and countries like Egypt, which earns billions a year in transit fees, but many multinationals have their shipping costs covered by existing contracts and have not felt the pain. But if the crisis is contained in the first half of this year, many economists don’t see lasting consequences for global trade, given the relatively small portion of the price of expensive consumer goods or energy that are made up from shipping costs.
“The situation today is not comparable to the environment during the Evergiven accident in the Suez Canal and the coronavirus pandemic, when lockdowns led to a drastic reduction in the supply of goods, and demand in Europe exploded at the same time,” said Julian Hinz, director of Trade Policy Research Centre at Kiel. “Apart from slightly longer delivery times for products from the Far East and increased freight costs … no negative consequences for global trade are to be expected.”
The saving grace is that the oil price remains relatively benign, despite the war in Gaza and the Houthis’ actions. The price has rumbled around the high $70s for the past year and even dipped slightly after Oct. 7.
The real concern for most economists is if the conflict escalates into a shooting war with Iran, which would send oil prices rocketing. Iranian Foreign Minister Hossein Amir-Abdollahian was also in Davos and reassured the global elite that attacks by “the Axis of Resistance,” including the Houthis, would stop if the war in Gaza ended. “The security of the Red Sea is tied to developments in Gaza, and everyone will suffer if Israel’s crimes in Gaza do not stop,” he said, sending a signal of how business is done in Tehran these days.
U.S. National Security Advisor Jake Sullivan attends a session during the 54th annual meeting of the World Economic Forum in Davos, Switzerland, January 16, 2024.
US and China set up back-channel meetings as pressure over Yemen grows
US National Security Advisor Jake Sullivan will reportedly meet with Chinese Foreign Minister Wang Yi behind closed doors in the coming days to discuss the Middle East and Taiwan.
Several top-level meetings had already been on the public schedule, but this private format – previously used to set the stage for the 2023 Biden-Xi summit as well as to smooth things over after House Speaker Nancy Pelosi’s 2022 visit to Taiwan – allows a more candid exchange on sensitive issues.
Taiwan on the agenda. The meeting comes just one month after pro-independence candidate William Lai won the Taiwanese presidential elections. As such, it’s a chance for Washington and Beijing – which considers Taiwan to be part of China – to speak frankly about boundaries over the self-governing island, minimizing risks to the stability of the US-China relationship.
But the Houthi issue may be more pressing, as the Iran-backed rebel group’s attacks on Red Sea are posing a broader risk to the global economy. Some 15% of global trade normally passes through the Red Sea, including crucial cargoes of oil, natural gas, and grains. Ships forced to take the 4,000-mile longer alternate route around the Cape of Good Hope add about 10 days time and triple the cost of shipping, raising prices for the producers and consumers who rely on those goods.
The US, which has pounded Houthi positions with airstrikes, has also been asking Beijing to use its good offices with Iran to ask Tehran to restrain the Houthis. Beijing’s reaction has essentially amounted to “sinking ships is bad, but you’re on your own, pal.” In part that may be because the Houthis have promised not to attack Chinese ships, a pledge that some Chinese shipping companies are capitalizing on. Still, if the Red Sea choke-out starts to have wider effects on the global economy, China – still nursing a slow post-pandemic recovery – may start to see things differently.