Geo-economics in a Multipolar World: Rules of Engagement for the Small, Open Economy

Table of Contents Introduction How We Got Here Geo-economics: The Weaponization of Trade, Investment and Finance Canada’s Geo-economic Hand and How It Plays It Weigh Entanglement in Geopolitical/Geo-economic Power Plays Carefully Revising the Rules of Engagement Concluding Thoughts End Notes About the Author Canadian Global Affairs Institute Introduction Canada finds itself in a new world order shaped by geopolitical great-power rivalry in an emergent multipolar context. This new world order emerged with the relative decline of U.S. power and the technological conditions that have unleashed geo-economic competition to dominate the new general-purpose technologies based on big data, machine learning (ML) and artificial intelligence (AI). As a small, open economy that is vulnerable to the weaponization of interdependence, Canada is decidedly not a geo-economic player. Its preferred operating environment is a rules-based multilateral system in which the large and small economies follow the same rules. The emergence of a system in which power plays a much larger role means that Canada will have to behave much more strategically. This paper looks at why and how this new world has come about and how Canada will have to adjust, drawing on the lessons of its past entanglements in geopolitical/geo-economic power plays. Two specific events symbolized the passing of the rules-based multilateral system developed under U.S. tutelage in the post-Second World War era. First was the shutdown of the World Trade Organization’s (WTO) Appellate Body on January 10, 2019, which effectively shut down the rule of law in international economic relations. WTO members were still free, of course, to voluntarily observe the old rules, but multilateral enforcement sanctioned by the system’s supreme court no longer prevailed. Second, hot on the heels of the U.S. exit from Afghanistan on August 30, 2021, came the Russian invasion of Ukraine on February 24, 2022, which, in the absence of a United Nations response – due to nuclear blackmail from Russia – effectively ended even the pretence of rule of law in international political relations. The principal geo-economic confrontation remains the trade and technology war between the United States and China, but a new high-intensity front has opened up between the EU 27 and the United States versus Russia, with economic sanctions and counter-sanctions over the invasion of Ukraine. In the background, there remains a low-intensity front between the United States and the EU 27 regarding the division of the economic spoils of the data-driven economy