Senator Yuen Pau Woo

Beedie School of Business

Simon Fraser University

Distinguished guests, friends, colleagues: Good morning. I would like to thank Jing Li and Mila Lazarova for inviting me to make opening remarks at this conference, and to Eric Werker for chairing the discussion to follow.

I have been assigned a very challenging topic, which is Middle Power Strategies in an Era of Geopolitical Rivalry: Implications for Firms and International Business. This is a topic worthy of a semester-length course on international relations, business strategy, and politics. My speech will be more modest in its ambition. I will provide an interpretation of the “rupture” in the global order that Prime Minister Carney talks about and offer a framework for thinking about different categories of middle power strategy in response to the rupture, and how they impact business.

The idea of “middle powers” playing a unique role in global affairs is not new. Countries that self-identify as middle powers have long imagined having an outsized influence in the world, stepping in as a collective to solve regional or global problems that great powers are unable or unwilling to address. From conflict resolution to multilateral trade negotiations, and on environmental issues, countries as diverse as Canada, Norway, South Africa, and Brazil have tried to convene and cajole alliances of disparate countries to work together for common good.

It is doubtful if middle power coalitions have ever been successful much beyond mutual self-help, awareness raising and a modest restraint of great powers. From the attempt to codify the “Responsibility to Protect” (R2P) in situations of mass atrocities to the Cairns group in the WTO, and in the establishment of the International Criminal Court, these efforts have generally been successful for only as long as the issues at stake have not tested the core interests of the great powers.

R2P, which emerged as a sincere response to the 1994 genocide in Rwanda, has been largely ineffective in subsequent cases of civil unrest in Syria, Myanmar, South Sudan, the Democratic Republic of Congo, and Gaza. NATO’s military intervention in Libya in 2011 invoked R2P, but this action was aligned with the interests of the United States. The Cairns group has won the intellectual argument for agricultural sector liberalization, but tariff and non-tariff barriers in agriculture and agrifood are as entrenched as they have ever been. And while the ICC was successful in prosecuting six individuals for grave violations of international law (i.e. war crimes and crimes against humanity), all the individuals prosecuted to date are Africans who were involved in conflicts that the US did not have a serious stake in. Today, all 9 justices on the ICC have been sanctioned by the US because of the Court’s arrest warrants for Israel’s Prime Minister and Defence Minister.

The shortcomings of middle power initiative were evident during a period of expanding globalization under US pre-eminence – a period that should have been the most conducive to middle power initiative.  In the current context of heightened geopolitical competition and national self-interest, the prospects for middle power initiatives would seem to be even less promising. As the undisputed global hegemon, the United States was willing to exercise a benign neglect of middle power groupings acting against its interests. As a declining power, the US is less likely to indulge initiatives that poke the eagle. This is likely true regardless of the person in charge of the White House.

Which brings us to the famous “rupture” speech that Prime Minister Mark Carney delivered at Davos in January of this year. I agree with him that there has been a rupture in the world order, and while he doesn’t say as much, I think he would agree with me that the rupture is in part due to the relative decline of US power in a more multipolar world. I also agree with him that we have been living a partial lie about the rules-based international order, one in which “the story of the international rules-based order was partially false. That the strongest would exempt themselves when convenient. That trade rules were enforced asymmetrically. . . .that international law applied with varying rigour depending on the identity of the accused or the victim”.  

The importance of his observation about the double standards of the dominant powers is not in its insight, but it is in the fact that a G7 leader said it. For most observers of international economics and politics from the Global South, the uneven and inconsistent application of the international order has been obvious for as long as the post war international order has been in place. If Mr Carney’s observation truly came across as a revelation to the audience of the great and the good at Davos, the challenge of navigating an emerging new world order will be even greater than Mr Carney makes it out to be.

The reason is that while Mr Carney has acknowledged the stirrings of a new world order that resists the double standards of the status quo, his proposed solution seems to cling to significant chunks of the old order without any suggestion of how the old order powers (of which Canada is a part) intend to redress the inequities of that order. I say “seems to” because the second half of Carney’s speech – the part that follows the stirring reference to Vaclav Havel and the need to take the sign from the window – is a mashup of conceptually flexible ideas that can be taken in multiple, even contradictory, ways.  There is obvious utility in this a la carte menu for Mr Carney’s government, since he can “take the world as it is, rather than as we wish it to be”, while exercising “values-based realism” and seemingly “applying the same standards to allies and rivals” when it comes to economic intimidation.  All of which is captured in the magnificently elastic term “variable geometry”, which appears to be the closest thing we have to a Carney foreign policy doctrine.

In mathematics, “variable geometry” does not refer to a sub-discipline or method for solving problems but is used broadly to describe situations where structures can take on different shapes. Such is the beauty of a concept taken from a discipline known for precision that is grafted onto the fuzzier world of politics and international relations.  It is not just that the term “variable geometry” is ambiguous, but that it is, as they say in diplomacy, constructively ambiguous. Politicians can employ it in just about any situation that calls for non-standard formulations of international exchange.

According to Carney, a primary vehicle for implementing variable geometry is middle power coalitions. The task of middle powers is to “build something better, stronger and more just”. Middle powers “have the most to lose from a world of fortresses and the most to gain from a world of genuine cooperation”.

What does he mean by middle power coalitions, and what do they mean for firms?

Here we need to distinguish between several distinct ideas that tend to be conflated and applied uniformly to middle powers.  Let me propose a simple framework for understanding four different approaches that middle powers such as Canada are pursuing.

The first is autonomous strategies of middle powers that are essentially defensive actions to strengthen economic resilience and create strategic autonomy. They include industrial policy; domestic procurement and sourcing; sovereignty enhancing measures, for example in digital technologies, orbital space, food and other critical inputs; investing in military capability; trade protection in selected areas; and infrastructure development for a stronger domestic economy. You will recognize all of these as priority items of the Carney government. The underlying logic is greater self-reliance and reduced vulnerability to external shocks, all of which makes intuitive sense.  But we should be clear that autonomous strategies do not necessarily involve coalitions of middle powers, and they can in some cases create conflicts among middle powers. They also have nothing to do with strengthening the international system, providing global public goods, or redressing the inequities of the status quo order.

A second strategy is mutual assistance, which is a more explicit form of middle power cooperation that seeks to build or protect privileged relationships among middle powers from disruption due to global events, including economic coercion, war, pandemics, and other shocks. Currency swap agreements, supply chain continuity deals (e.g. buyer’s clubs for critical minerals or semiconductors), non-market sale/purchase agreements, and defense cooperation are examples of mutual assistance that are essentially a form of bilateral or plurilateral self-help. These deals are akin to preferential trade agreements (PTAs) that benefit the members but do little for the international system and, like PTAs, can in fact harm the multilateral trading system.

The third form of “middle power” strategy is hedging. It is the most well-known and most often cited prescription for middle powers that fear domination by great powers.  In Canada, it has found fresh expression in the old idea of “trade diversification”. In military-strategic terms, hedging is sometimes described as “balancing”. Hedging or balancing, however, is not a middle power strategy as much as it is a strategy to reduce overdependence on a single market for economic growth or on a single country for military and diplomatic support. No sensible hedger would eschew the US or the Chinese market in favour of increased trade solely with other middle powers. Hedging is simply portfolio diversification applied to international trade and diplomacy. A hedging strategy might overweight or underweight major markets, but it is unlikely that the strategy would exclude those markets altogether.  Investors and firms are natural hedgers so this is a strategy that will be familiar to business and to all of you.

Middle power coalitions to solve global or regional problems, on the other hand, are in a category all to itself. I have already provided some examples of middle power coalitions to solve regional or global problems that were limited in their success -- even during a permissive period of benign globalization. I am even less optimistic about the prospects of success in an era of heightened geopolitical competition, nationalism, and multipolarity.

Part of my skepticism stems from the way in which these kinds of coalitions tend to be imagined. They are usually coalitions of middle powers that largely represent the status quo order and are fundamentally seeking to resurrect a version of the old order that preserves the privileges and power of the West.  An exemplar of this approach is the recent proposal from Anders Fogh Rasmussen, former Prime Minister of Denmark, ex-Secretary General of NATO, and current head of the Alliance of Democracies. He has proposed the establishment of a new organization which he dubs the Democracies-7 (D7), consisting of Australia, Canada, the European Union, Japan, New Zealand, South Korea and the United Kingdom as founding members. The priorities of the D7 include promoting international trade, setting standards in key technology sectors, mutual support against coercion, and countering the influence of authoritarian states, especially China.

The D7 proposal is premised on the idea that a self-selected group of model middle power democracies have a unique responsibility to solve global problems defined by the group. As a brainchild of the Alliance of Democracies, it conveniently overlooks the findings of the Alliance’s annual surveys on perceptions of democracy, covering 98000 respondents across 94 countries. The 2026 results show that Chinese respondents have a higher positive perception of democracy in their country than the putative Asia Pacific members of the D7 – Australia, New Zealand, Japan, and South Korea. The UK for its part is ranked in the lower half of European countries surveyed and the EU is divided on many of the key issues the D7 is supposed to tackle. This is the kind of middle power coalition that not only risks reinforcing perceptions of Western moral superiority but is also oblivious to the very reasons for a rupture in the international system. As E.H. Carr, the British Historian and International Relations scholar said in his 1939 classic The Twenty Years Crisis, 1919-1939: “Theories of social morality are always the product of a dominant group which identifies itself with the commonality of the whole, and possesses facilities denied to subordinate groups or individuals for imposing its view of life on the community.”

Or to quote Finnish President Alexander Stubb (from whom Carney cribbed the idea of “values-based realism”): “The Global South will decide whether geopolitics in the next era leans toward cooperation, fragmentation, or domination. . . . This is the last chance for Western countries to convince the rest of the world that they are capable of dialogue rather than monologue.”
Before I move on to whether there are other kinds of middle power coalitions that have a better chance of succeeding, I want to point out some first order implications of my framework for firms.   It is that each of the four strategies translates into distinct operating environments for business: autonomous policies mean industrial policy and local content rules; mutual assistance means preferential access but also fragmentation; hedging translates into diversified supply chains, second sourcing and redundancy; and coalitions create competing regulatory spheres.

We can already see the four strategies I have described playing out around us. Autonomous strategies are evident in the race for semiconductor independence and sovereign AI. Mutual assistance is visible in the rise of friendshoring and politically aligned supply chains. Hedging is what firms themselves are doing through diversification — ‘China plus one’ strategies that reduce exposure without abandoning major markets. And when we turn to global problems — digital governance or modern warfare — what we see is not the success of middle power coalitions, but their absence, reflected in the fragmentation of the internet and the compartmentalization of conflict. The world is differentiating along precisely the lines of these four strategies.

I am not entirely giving up on the idea of middle power coalitions to solve global problems, but on this question, the key issue is whether the coalitions are consonant with the emerging world order or if they are efforts to shore up the status quo. It is not a question about “who is a middle power” since there are middle powers with capability but who do not self-identify as middle powers, and there are middle powers that have no capability on the issues that matter. What is important, rather, is how we qualify the idea of a suitable “middle power”. The standard formulation is that we – that is Canada – will work with “like minded” middle powers, or middle powers with “shared values”. This is a rhetorical reflex of western politicians and diplomats that is increasingly empty and platitudinous, and therefore harmful to the “variable geometry” we seek to pursue. Is the United States a like-minded country? Do we share common values with a government led by the AFD in Germany, Rassemblement National in France, or Reform in the UK? Is like mindedness and common values only about individual freedoms and liberal democracy? What about the common values of economic and social welfare, technological progress, cultural protection, and public safety? Do we even need to invoke “like mindedness” and “common values” as if these were commonly understood terms that make sense for the diversity of international relationships that we have in a multipolar world?

The existing international order is under strain, and a new order is taking shape. Middle powers must decide whether their collective action is aimed at extending the life of legacy institutions or positioning themselves constructively within an emerging global landscape shaped by shifting power, new actors, and new forms of cooperation. Limiting our scope of action with legacy ideas about common values and like mindedness not only exacerbates the problem of hypocrisy that the Prime Minister exposed in Davos but also constrains Canada’s ability to exercise variable geometry for new opportunities, new partners, and new markets.

Davos notwithstanding, the reality is that Canada is late to variable geometry and foreign policy pragmatism. Much of the Global South has long resisted the pressure to align with one bloc or superpower, preferring instead to pick and choose partners according to the issue at hand and depending on the circumstances of the moment.

As Canada seeks to work with some of these countries through coalitions of middle powers, it is important that we come not with the missionary zeal of a new convert, but with the humility of a former apologist for the old order. In this respect, we have more to learn from ASEAN and the non-aligned countries of Africa and Latin America than from the UK and EU, which have nodded approvingly of the Carney reveal, but remain institutionally and emotionally attached to the status quo order.

Let me turn now to the specific question of Canada’s options and the prospects for a Canadian middle power strategy. Canada is currently pursuing three of the four middle power modalities I outlined: autonomous development, mutual help, and hedging/diversification. PM Carney has talked about being part of a middle power coalition to address broader global challenges, but I don’t see any sign of that at the moment. I support the initiatives of the government and hope we can stick with the plan for long enough to see some tangible results. But tangible results will take time, whether we are talking about building major projects, attracting investment, diversifying trade relations, or forging new diplomatic partnerships. In the meantime, our economic and strategic dependence on the United States is both a buffer and a threat. It is a buffer because of the continued importance of the US market for Canada in a fragmenting global environment, even in the face of tariffs; it is also a threat because of continued and unpredictable economic coercion that may escalate into something more ominous.

Donald Trump aside, the gravitational pull of the United States on the Canadian psyche, never mind the economy, is more powerful than most will admit to. It is not just that many Canadians watch American television, follow American sports, vacation in the United States, and have friends and relatives across the 50 states. It is that powerful interests in Canada are deeply embedded in American political, business, military, social, and cultural circles, from which even a modest withdrawal will cause material and psychological stress. The connective tissue between Canada and the United States is profound and self-reinforcing. To relax this tissue, much less sever it, will involve pain and dissonance, whatever the longer-term benefits of doing so might be.

The immediate test of our willingness to pursue a more independent economic and foreign policy will be in the renewal of the Canada-US-Mexico Free Trade Agreement (CUSMA), which must be completed – in theory – by July 1, 2026.

Notwithstanding the near unanimous opposition to the idea of becoming the 51st state, there is an important strand in Canadian elite opinion that is advocating for even deeper North American integration as a response to the Trump tariff threat. Sometimes framed as a further evolution of NAFTA and at other times seen more narrowly as a Canada-US only project, this view has been described as ”Fortress North America”, a “Grand Bargain” or an “Economic and Security Pact” that is designed to boost competitiveness and reduce dependence on adversaries, notably China.

It is not clear if a “grand bargain” is achievable as part of the CUSMA review, but there should be no doubt that any “grand bargain” would involve less strategic autonomy for Canada on key issues such as tariff policy, border security, industrial policy, and perhaps even monetary and fiscal independence. As our negotiators contemplate the worst-case scenario of CUSMA not being renewed, or even a scenario where CUSMA continues in a zombie-like state, there will undoubtedly be voices advocating for a continentalist compromise, where the sacrifice of some Canadian autonomy is seen to be worth the gain of an economic and military security umbrella from the United States. We were already heading in a continentalist direction under Trump 1.0 and during the Biden years. If we continue to do so, it would be less an aberration in Canadian policy than a reversion to the mean. That would in turn put to rest any aspiration for middle power agency and greater strategic autonomy.

Let me conclude with a very brief reflection on what it means for the study of international business.  I am not an IB scholar, but I learned an IB concept recently from Dr Werker, who told me about the CAGE framework for understanding distance in international business relationships.  By any measure, we are closer to the US than any other country in terms of the four vectors of this framework – culture, administration/politics, geography and economics.  I stand to be corrected, but I don’t think this framework is deterministic as much as explanatory. Less an iron CAGE than an escape room.

Which is why I think IB scholars can play a big role in helping us understand exceptions to the framework and how the four factors can be mitigated or overcome through deliberate policy and strategy. This is not only a question for firms, but for the country as a whole. Many of the foreign policy ideas that are now being advanced by our political leaders are the ones that entrepreneurs and business executives are familiar with and have long been practicing in their organizations: pragmatism, the need for diversification in supply chains and end markets, values-based realism, and adapting to the world as it is rather than as they wish it to be – in short, variable geometry. So, I will end with this idea:

That it is not just that firms must adjust to middle power strategies for a more fragmented world order marked by heightened geopolitical rivalry. It is also that businesses, which have always had to respond to changing market and political circumstances, can help governments navigate the changing world order that we currently inhabit, with the tools that governments are borrowing from business. This means that the study of international business is more relevant than ever. I hope the Canadian chapter of AIB will bring that relevance to bear on the important questions that Ottawa is facing today, and in the years ahead. In that sense, the issue is not just how firms will adapt to a changing world order—but whether governments can learn to think as flexibly as the firms they regulate.

Thank you. I look forward to your questions and feedback.