What happens in Davos doesn’t stay in Davos, Americans have learned to their great regret in recent decades. The mindset promoted and reinforced in the Swiss Alps corrupts the domestic economy and domestic politics, and from there goes on to affect the lives of ordinary Americans. Also, we sent Oren, and he has thoughts. So at the risk of this week’s edition becoming Understanding Davos, we turn our eyes across the Atlantic, where our Canadian friends were making a scene of their own, as Daniel explains:
Last week, Canadian Prime Minister Mark Carney announced a new “strategic partnership” with Beijing, attempting to signal that Ottawa won’t simply accept Washington’s terms as the Trump administration remakes the international trading system. Then, on the first anniversary of President Trump’s return to the White House, Carney took the stage at the World Economic Forum in Davos to make the case for middle-power autonomy. “When we only negotiate bilaterally with a hegemon, we negotiate from weakness,” he argued, warning that middle powers risk “the performance of sovereignty while accepting subordination.” He criticized the habits of great powers, including using “tariffs as leverage” and treating “supply chains as vulnerabilities to be exploited.” He said that when they “abandon even the pretense of rules and values,” middle powers will pay the price.
But no matter how loudly Davos applauds or how warmly a favorable press receives him, Carney doesn’t have the cards. He has geography. And that geography still governs the fundamentals of the Canadian economy.
Carney has marketed his deal with China’s Xi Jinping as a significant pivot. For now, it’s mostly symbolic. Canada’s “agreement in principle” with China is not a comprehensive trade deal but a narrow swap: Ottawa will allow up to 49,000 Chinese electric vehicles per year under its most-favored-nation rate of 6.1%, down from the 100% duty Canada imposed in 2024. That’s about 3% of annual new-vehicle sales. In exchange, China will cut tariffs on Canadian canola seed from approximately 84% to 15%, with limited relief promised for other agricultural exports.
Whatever pose Carney strikes, Canada’s balance sheet still points south. In 2024, the United States bought 76% of Canada’s exports and supplied 62% of its imports, with Canada running a $102 billion goods surplus in the relationship. China sits on the other side of the ledger: Canada ran an almost $60 billion deficit with Beijing that year, even though the relationship is far smaller in scale. China accounted for 12% of Canada’s imports but took only 4% of its exports. In other words, China sells into Canada far more than it buys from it, making it a source of intensive competition for Canadian producers without offering them a substitute for U.S. demand.
Nor could Canada replace the U.S. market with a grab bag of “middle” powers. That’s a playbook it has already tried. As Financial Times columnist Alan Beattie points out, Canada spent the last decade pursuing the same diversification strategy through trade deals with the EU and the CPTPP (a quasi-Trans-Pacific Partnership without U.S. participation). Yet those agreements barely moved the needle: the percentage of Canadian exports to the U.S. market remained in the mid-70s. Geography, as Beattie puts it, remains close to destiny. For Canada, the upside of middle-power diversification is limited.
Carney’s China gambit can take only two paths, and neither ends well.
If it’s intended as leverage—an attempt to conjure a bargaining chip ahead of this year’s USMCA review—it invites blowback. USMCA is Canada’s most valuable strategic asset because it affords Canada preferential access to the U.S. market. Signal a closer embrace with China, and the United States will treat Canada as a backdoor for Chinese goods. In the worst-case scenario, Carney’s gambit could tempt the Trump administration to cut a bilateral deal with Mexico that sidelines Canada, turning a supposed leverage play into a loss of privilege.
If Carney’s strategic positioning isn’t a bluff—if he genuinely believes Canada can diversify toward China—then it becomes something worse: setting Canada down the road to deindustrialization. China does not “open up” to create balanced trade. It exports its way out of domestic weakness, using state support and industrial policy to dominate global manufacturing. Any “partnership” that lowers barriers in autos or manufactured goods will run the same script: Canadian market share shrinks, local capacity erodes, and dependence on resource exports deepens. As Lawrence Zhang of the Information Technology and Innovation Foundation writes, “by treating electric vehicles and canola as roughly equivalent trade-offs, Canada is confusing industrial platforms with bulk exports.” Trading industrial exposure for agricultural export access would turn Canada into a permanent resource economy and give Beijing another outlet for its overcapacity.
A rational Canadian leader would double down on North American strength. Coordinate with the United States on sectoral defenses against Chinese overcapacity, pair them with stricter rules-of-origin enforcement, and block transshipment. If USMCA survives on preferential terms while reciprocal tariffs rise elsewhere, investment will crowd into North America. Canada should position itself to capture that investment, not repel it.
Carney says the old order is over. He’s right. But under the rules of the new game, his cards just aren’t worth much on their own, and they are lying face-up on the table, making grandiose bluffs rather ineffective. He can still play a winning hand if he uses geography to his advantage and partners with the one other player that can sustain Canadian prosperity and Canadian industry: the United States. — Daniel
WE INTERRUPT THIS BROADCAST…
Sorry, Oren here, from somewhere in the Swiss Alps. I just needed to add one other thing about the Carney speech, which seems to have gone puzzlingly underanalyzed: What was with that greengrocer bit? Carney reportedly wrote the speech himself, and it showed, in an analogy that any globalist financier would wield proudly in proof of his worldliness and historical acumen, but anyone with a shred of political intuition would recognize instantly as self-defeating.
“In 1978,” began Carney, “the Czech dissident Václav Havel, later president, wrote an essay called The Power of the Powerless, and in it, he asked a simple question: how did the communist system sustain itself? And his answer began with a greengrocer.”
Every morning, this shopkeeper places a sign in his window: ‘Workers of the world unite’. He doesn’t believe it, no-one does, but he places a sign anyway to avoid trouble, to signal compliance, to get along. And because every shopkeeper on every street does the same, the system persist – not through violence alone, but through the participation of ordinary people in rituals they privately know to be false.
Havel called this “living within a lie”.
So far so good. Solid fodder for a bold speech on the international stage. So, to what modern calamity does Carney liken this totalitarian oppression? He went on: “For decades, countries like Canada prospered under what we called the rules-based international order.” Oh no.
We joined its institutions, we praised its principles, we benefited from its predictability. And because of that, we could pursue values-based foreign policies under its protection.
…American hegemony, in particular, helped provide public goods, open sea lanes, a stable financial system, collective security and support for frameworks for resolving disputes. So, we placed the sign in the window. We participated in the rituals, and we largely avoided calling out the gaps between rhetoric and reality. This bargain no longer works.
So participants in the rules-based international order, delivered through American willingness to provide public goods, were… “living within a lie,” that they all knew was a lie, all in weak-willed service to totalitarianism? Or, no, we should recognize and celebrate its collapse as akin to one of the great triumphs for freedom in human history? No, that can’t be it.
Carney seems to be saying that living within the lie was good so long as the lie was working for him and someone else footed the bill, but living within the lie is no longer good if that bargain changes, at which point standing on stage to declare it a lie all along represents some form of bravery. But ultimately, he seems to be making President Trump’s precise point—it was the president who announced first that the United States would no longer display the sign, and Carney apparently thinks he was right to do so.
None of this makes any sense. World leaders should be making the case for continued adherence to cooperative norms on realist grounds, explaining why they do benefit all participants and accepting that they will have to change where the equation no longer pencils out. Instead, Carney is arguing that the cooperative norms were a lie, that they were good specifically because the United States was willing to bear the cost of supporting them, and if that’s no longer the case, well then he’s out.
This, apparently, was the highlight of Davos, which tells you everything you need to know about the audience’s disinterest in thinking seriously about the world and its challenges. — Oren
LET’S STAY IN DAVOS
Speaking of Davos speeches that don’t reflect reality: Chinese Vice Premier He Lifeng told the World Economic Forum—with a straight face—that China never pursued a trade surplus; that its development has been “achieved mainly through reform, opening up and innovation, rather than so-called government subsidy”; and that despite “being the world’s factory,” China hopes to be “the world’s market too.” He also warned that “tariff and trade wars have inflicted significant shocks on the world economy,” doing the greatest damage to “multilateralism and free trade.”
In a “news analysis” headlined “China Wins as Trump Cedes Leadership of the Global Economy,” the People’s Daily New York Times dutifully relayed the message: “China is—at least rhetorically—invested in economic values that Mr. Trump has renounced: engagement in multilateral institutions to advance its causes, faith in the wealth-enhancing powers of global trade and recognition that no country is large enough or powerful enough to go it alone.”
Of course, rhetoric is cheap. Here in the real world, China just posted a $1.2 trillion trade surplus in 2025—the largest ever recorded, even adjusted for inflation—and is preparing a new five-year plan that will, to no one’s surprise, double down on export-led manufacturing dominance. That surplus reflects an export-dependent, beggar-thy-neighbor model that manufactures “competitiveness” through scale, state power, and suppressed consumption. Whatever one thinks of President Trump’s tariffs, Chinese overcapacity poses a greater risk to global economic growth than his administration’s trade agenda.
In other China news:
Russia, Ukraine and the Race for Chinese Drone Components (Financial Times): “As both sides scramble to source vital parts, some experts are convinced Russian buyers are being favoured by Beijing.” Perhaps China is not a great power that liberal democracies and middle powers should align with…
Brussels in Move to Bar Chinese Suppliers from EU’s Critical Infrastructure (Financial Times): “Brussels is to propose phasing out Chinese-made equipment from critical infrastructure in the EU, barring companies such as Huawei and ZTE from telecommunications networks, solar energy systems and security scanners, according to officials.”
Chinese EVs Blow Past Tesla and Tariffs En Route to Global Reign (Wall Street Journal): “U.S., European Union and Mexico try to quash accelerating demand for China’s hottest electric vehicles.”
China Registers Lowest Number of Births Since Records Began (Financial Times): “China last year registered the lowest number of births since records began, marking the fourth consecutive year of population decline as policymakers grapple with a demographic crisis. On Monday, the government reported that 7.92mn babies were born in 2025, down from 9.54mn the year before, and the lowest number of births since 1949.”
WHAT ELSE SHOULD YOU BE READING?
Democrats and the Siren Call of Culture Denialism: In The Liberal Patriot, Ruy Teixeira provides a one-year check-in on Democrats under President Trump’s second term, and argues that the party still refuses to internalize one of 2024’s clearest lessons: cultural issues mattered, and they still matter. Instead of reassessing these issues, Democrats have retreated into what he calls “culture denialism” because party leaders would rather appease activists and professional-class constituencies than risk a fight that might broaden their appeal to the electorate. The problem is that voters notice what Democrats won’t talk about; a strategy of avoidance can only get them so far.
Warning Lights for Team Blue: Relatedly, and also published at The Liberal Patriot, Henry Olsen digs into the data and finds that Democrats might not be as strong headed into the midterms as the vibes among the chattering class suggest.
Don’t Underestimate Shame as a Way to Fight Back Against Tech: In the New York Times, Jessica Grose argues that the most effective check on our AI overclass isn’t a new regulatory framework, but the oldest one in politics: shame. (That said, a new regulatory framework would be nice, too….) She notes how quickly AI experiments can go off the rails, citing an AI-enabled teddy bear that users could prompt into recommending BDSM, as well as xAI’s Grok’s foray into sexualized deepfakes, which Elon Musk finally clamped down on amidst public pressure.
And for a different look at a dystopian societal development that could also benefit from a regulatory framework, read Betting on Prediction Markets Is Their Job. They Make Millions.
CHINA HAWK BADGES OF SHAME
One week after Oren testified before a House Foreign Affairs Committee hearing titled “Winning the AI Arms Race against the Chinese Communist Party,” the committee passed legislation that would help the United States do just that. The AI OVERWATCH Act, sponsored by Chairman Brian Mast (R-FL), advanced by a vote of 42–2–1, marking the first congressional vote to restrict AI chip sales to China, and providing a rare bipartisan check on a White House that’s been less restrictive than it ought. The legislation would give Congress a formal review process for proposed AI chip exports to China, modeled on the mechanism already used for arms sales, and it would impose a two-year ban on selling China any AI chip more advanced than NVIDIA’s H200 or AMD’s MI325x. Forty-two China Hawk Badges of Shame are printed and headed to Capitol Hill for a job well done protecting the national interest.
Bonus Badge of Shame: Ahead of the vote, the Midas Project’s Model Republic reported “suspicious similarities in posts from over a dozen conservative influencers including Laura Loomer, Brad Parscale, and Ryan Fournier hint at a coordinated-yet-slapdash effort to stop the AI OVERWATCH Act,” wondering “are they getting paid to kill it?” Now, who might have a financial interest in killing it? Rep. Mast has a theory.
And speaking at Davos, Anthropic CEO Dario Amodei criticized the decision to allow Nvidia to manufacture AI chips for China, comparing it to “selling nuclear weapons to North Korea.” Amodei argued that while the United States remains “many years ahead of China” in chipmaking, the move by Nvidia (one of Anthropic’s major investors) and the Trump administration has “incredible national security implications.” We agree. Revisit Chris Griswold’s Commonplace essay on why we should “Stop Arming Our Adversary” to learn more.
In other concerning U.S-China technology news, “TikTok Strikes Deal for New U.S. Entity, Ending Long Legal Saga” that allows “ByteDance to keep 19.9 percent of the company, keeps the new U.S. entity run by a longtime TikTok senior executive, and that will “retrain the algorithm on U.S. data.”
ON TRADE
Despite the weeping and gnashing of teeth amid President Trump’s moves on Greenland—and the warnings in the press that the Europeans will choose China—the inertia of the international trading system’s realignment continues apace:
Irish journalist Finbarr Bermingham notes: “More signs an EU-China détente [appears] unlikely, despite transatlantic mess. Brussels wants to change WTO rules on most-favoured nation to allow it to more easily raise tariffs, according to a paper circulated in Geneva today. Trade perks should be tied to reciprocity, it says.”
And in the Financial Times, the EU commissioner for trade and economic security questions the utility of one of the postwar international trading system’s sacred cows: “We must also rethink how the “most favoured nation” principle functions and whether the current balance of rights and obligations remains fit for purpose.”
Ending on a high note: General Motors is moving production of its only made-in-China auto exported to the U.S. market back to the United States because of the Trump administration’s auto tariffs: GM to move production of Buick SUV from China to U.S. (Reuters). Why would they do that? Don’t they know that tariffed steel is more expensive here? Questions to ponder as you…
Enjoy the weekend!
"A rational Canadian leader would double down on North American strength. Coordinate with the United States on sectoral defenses against Chinese overcapacity, pair them with stricter rules-of-origin enforcement, and block transshipment. "
Umm, this *was* long standing Canadian policy right up to December 2024, when all the "51st State" talk started up. Trump (and the entire US administration) are making closer coordination with the US politically impossible here.
I am struggling to imagine what other response from us you could be expecting given how the Administration is acting. Bessent was musing *today* about how good Alberta would look flying the Stars and Stripes. Jesus Christ. You all know we get US news up here right?
Was the relationship perfect? Probably not, and there was already a lot of dissatisfaction with the leadership of Justin Trudeau. All Trump had to do was keep his mouth shut and he'd certainly be dealing with a Conservative Prime Minister right now instead of Carney. As it is, nobody up here has the slightest idea what this administration is trying to get from us, other than lasting enmity.
[Turning to China] "would turn Canada into a permanent resource economy"
...kind of like Trump saying that he wants all automaking out of Canada.
Don't pretend that big, bad China is the one trying to deindustrialize Canada when Trump slapped 50% tariffs on Canadian aluminum and steel.
Does America have stronger cards? Sure. But it doesn't have an unlimited number of cards. Who do you want to play them against? Traditional enemies, or traditional allies?