Editor’s Note: This report analyzes the strategic pivot in Canadian foreign and economic policy following Prime Minister Mark Carney’s landmark address at the 2026 World Economic Forum. It examines the "Value-Based Realism" doctrine against the backdrop of fracturing U.S.-Canada relations and emerging global alignments in the "emerging world order".¹

Disclaimer: This report is for informational and research purposes only. The geopolitical and economic analyses contained herein are based on policy documents, speech transcripts, and expert projections available as of January 20, 2026. Actual geopolitical outcomes and economic results may vary significantly due to shifting international dynamics and legislative developments.

Value-Based Realism and the Reconstruction of Middle-Power Agency:

A Geopolitical Analysis of Canada’s 2026 Strategic Realignment

The global geopolitical landscape of 2026 has entered a state of definitive "rupture," a term articulated by Prime Minister Mark Carney during his landmark address at the World Economic Forum in Davos to describe the collapse of the post-war, U.S.-led international order.¹ This address, extensively documented and streamed by DRM News, serves as the foundational manifesto for Canada’s "value-based realism," a doctrine that acknowledges the end of "naive multilateralism" and seeks to position the nation as a resilient, independent actor within a fracturing global system.¹ The core of this strategy involves a pivot away from an increasingly isolationist and protectionist United States, toward a diversified web of global partnerships anchored in natural resources, advanced technology, and pragmatic, issue-based diplomacy.²

The Doctrine of Value-Based Realism and the End of the Old Order

The central thesis of the Canadian strategy is the recognition that the "rules-based international order" has ceased to provide the predictability and security upon which middle powers like Canada once relied.¹ In his Davos address, Carney argued that the transition is not a gradual shift but a violent break from the past, where the "strong do what they can, and the weak suffer what they must".² To navigate this, Canada has adopted "value-based realism," a term borrowed from Finnish President Alexander Stubb, which mandates being both principled and pragmatic, taking the world as it is rather than as Canada wishes it to be.¹

This doctrine necessitates the building of "coalitions that work," moving away from the "pleasant fictions" of universal institutionalism toward issue-specific alignments with partners who share enough common ground to act together.¹ The philosophical weight of this shift was highlighted in Carney’s reference to Václav Havel’s 1978 essay, "The Power of the Powerless," in which a greengrocer puts up a sign saying “Workers of the world, unite!” not because he believes it, but to avoid trouble and signal compliance.³ Carney posits that Canada will no longer participate in the rituals of a failing system just to "get along to get along," but will instead exercise the "power of the powerless" to build a new order integrating sovereignty, sustainable development, and the territorial integrity of states.³

Geoeconomic Confrontation as the New Global Norm

The World Economic Forum’s Global Risks 2026 report supports this framing, identifying "geoeconomic confrontation" as the primary threat to global stability.⁸ The report describes an era where trade, finance, and technology are wielded as weapons of influence, fragmenting societies and placing the world on a "precipice".⁸ Canada’s response, as outlined in the 2025-26 budget and the Davos address, is to build "strength at home" to ensure the nation is an "investable" destination in an unstable world.¹ This involves a sea change in fiscal policy, shifting from operational spending toward massive capital investments in nation-building projects.¹⁰

Macroeconomic Indicator	2026 Target/Value	Strategic Context
Real GDP Growth Projection	~1.0%	Revised downward due to U.S. tariff impacts.¹¹
Federal Deficit (2025-26)	$78.3 Billion	Investment-heavy deficit focused on capital projects.¹¹
Marginal Effective Tax Rate	13.2%	Target for G7-leading business competitiveness.¹⁰
Non-U.S. Export Goal	$250 Billion	Doubling the current base to reduce U.S. reliance.⁷
Infrastructure Spending	$315 Billion	Planned over 5 years to mobilize private capital.¹⁴

Strategic Diversification: The Pivot to China and the Middle East

The diversification mandate is most visibly operationalized through Canada’s high-stakes engagement with non-traditional partners, a move the government describes as "resilience over reliance".⁶ Prime Minister Carney’s January 2026 tour of Beijing and Doha represented the first such high-level diplomatic reset in nearly a decade, aimed at securing new markets and investment streams to buffer against the "Western hemispheric bully" stance of the Trump administration.¹⁷

The Sino-Canadian Trade Reset and the EV Quota Deal

The visit to Beijing marked a significant departure from the previous decade of "diplomatic amnesia" and frozen relations.¹⁷ At the Canada-China Trade and Investment Banquet, Carney signaled that Canada would challenge "U.S. trade dominance" by forging a "new era" of bilateral cooperation.⁴ The primary outcome of this visit was a trade agreement that broke Canada’s alignment with U.S. tariff policy on Chinese electric vehicles (EVs).¹⁷

Under the new agreement, Canada implemented a quota system for Chinese EVs, allowing for 49,000 units annually at a 6.1% tariff—a dramatic reduction from the 100% surtax imposed in 2024.¹⁷ This quota is slated to increase to 70,000 units within five years, a move intended to lower consumer costs and accelerate Canada's green transition, despite fierce opposition from the Ontario provincial government and the U.S. administration.¹⁷ In exchange, China agreed to reduce tariffs on Canadian agricultural products, specifically canola, pork, and seafood, which had been the target of long-standing economic coercion.¹⁷

However, experts from the Asia Pacific Foundation and other think tanks emphasize that this "pragmatic diplomacy" must be matched by robust "national security guardrails".²² The strategy differentiates between sectors like energy and agriculture, where engagement is deemed manageable, and "dual-use" domains such as advanced AI, space systems, and critical infrastructure, where the risks of espionage and foreign interference remain persistent.²²

Qatar and the "Declaration of Independence"

In Doha, the Carney administration secured commitments for "significant strategic investments" from the Qatar Investment Authority into Canadian infrastructure, energy, and defense sectors.¹⁹ This partnership is framed as a "declaration of independence" from Washington, positioning Canada as a sovereign actor that does not require "permission" to prosper.²⁷ Qatar’s diplomatic importance as a mediator in global conflicts—ranging from the Russia-Ukraine war to Israel-Hamas negotiations—further aligns with Canada’s goal of building a "web of connections" with influential global actors.⁶

China-Canada Trade Metrics	2024 Baseline	2026-2030 Agreement
Chinese EV Tariff	100%	6.1% (within quota).¹⁷
Annual EV Quota	0	49,000 (rising to 70,000).²¹
Total Two-Way Trade	$118.7 Billion	Targeted doubling of exports.⁶
Canola Export Status	Restricted/Tariff-hit	Tariff reduction/restored access.²²

Domestic Economic Fortification: The $1 Trillion Roadmap

To ensure Canada remains a "premier destination for global capital," the Carney government has implemented an industrial strategy that prioritizes productivity over operational growth.⁶ Budget 2025-26 introduces a series of transformative measures designed to enable $1 trillion in total investments over five years by leveraging government seed money to mobilize private and institutional capital.¹⁰

The Productivity Super-Deduction and Industrial Policy

A core pillar of this strategy is the "Productivity Super-Deduction," a policy that reinstates the Accelerated Investment Incentive and allows for the immediate 100% expensing of machinery, equipment, clean energy generation, and research and development (R&D) capital.¹⁰ This is explicitly designed to counter the "One Big Beautiful Bill Act" in the United States, providing a competitive tax environment that reduces the marginal effective tax rate to 13.2%.¹⁰

The strategy also includes the creation of the Major Projects Office (MPO), a "single point of contact" designed to fast-track regulatory approvals for nation-building projects in energy, trade, and transportation.¹⁰ By October 2025, the MPO had already taken on five major projects representing $60 billion in capital investment, with the goal of triggering $150 billion in total investment through streamlined permitting and coordinated financing.¹⁰

The "Buy Canadian" Mandate and Supply Chain Resilience

Recognizing the vulnerability of supply chains in a "world of fortresses," the government has formalized the "Buy Canadian Policy".¹ This mandate requires that all federal contracts exceeding $25 million prioritize domestic materials, specifically steel, aluminum, and critical minerals.¹¹ For example, the government has moved to tighten tariff rate quotas on foreign steel from non-FTA partners from 50% to 20% of 2024 levels, a measure expected to unlock over $1 billion in new domestic demand for Canadian steel producers.³²

Furthermore, the "Build Canada Homes" initiative, a federal homebuilding agency with an initial $13 billion mandate, is prioritizing the use of Canadian softwood lumber in "shovel-ready" projects to address both the housing crisis and the impacts of U.S. lumber tariffs.¹¹

Government Investment Stream	5-Year Budget (Cash Basis)	Expected Total Mobilized Investment
Industrial Development	$270 Billion	~$500 Billion from private sector.⁹
R&D and Scientific Research	$210 Billion	Focused on dual-use technology.¹⁴
Build Communities Strong Fund	$51 Billion	Infrastructure and regional priorities.¹¹
Build Canada Homes	$13 Billion	Housing technology and demand.¹¹
Arctic Infrastructure Fund	$1 Billion	Dual-use (civilian/military).³³

Continental Friction and the Arctic Sovereignty Crisis

The realignment of Canadian strategy is occurring amidst an unprecedented diplomatic crisis with the United States. President Donald Trump’s administration has pivoted toward a "Western hemispheric bully" model, threatening national sovereignty and using "national security" as a pretext for territorial ambitions in Greenland.¹⁸

The Greenland Flashpoint and NATO Alignment

U.S. President Donald Trump’s threat to impose a 10% tariff on any country opposing the U.S. acquisition of Greenland has created a significant security dilemma for Canada.⁸ Prime Minister Carney has described this situation as an "escalation" and reaffirmed that the future of Greenland must be determined solely by its people and the Kingdom of Denmark.³⁵

In response, Canada has coordinated with NATO allies, particularly France, to send a small contingent of soldiers for military exercises in Greenland.²⁵ This commitment is backed by an $80 billion increase in defence spending over five years, which includes $6 billion for an Arctic over-the-horizon radar system developed with Australia and $420 million for a sustained Canadian Armed Forces (CAF) presence in the High North.³⁴ These actions signal that Canada will no longer rely on "enviable geography" for its security but will instead build the military capabilities necessary to defend its Arctic sovereignty.²

The "One Canadian Economy" Act and Internal Barriers

To bolster domestic resilience against external shocks, the Carney government passed the "One Canadian Economy Act".²⁹ This landmark legislation removes all federal barriers to interprovincial trade, aiming to create a unified domestic market that can better withstand the "trade wars" initiated by Washington.² This policy is coupled with a 50% reduction in rail freight rates for transporting Canadian steel and lumber interprovincially, starting in Spring 2026, to ensure that domestic resources can move efficiently across the country.³²

The Gaza "Board of Peace" and Pragmatic Diplomacy

A defining element of Canada’s "value-based realism" is its involvement in the "Board of Peace," a Trump-led multinational institution tasked with overseeing the reconstruction of Gaza.³⁹ Prime Minister Carney’s acceptance "in principle" of a seat on this board, despite its controversial inclusion of Russian President Vladimir Putin, illustrates the pragmatic nature of the new Canadian foreign policy.³⁹

The Board of Peace aims to oversee a technocratic Palestinian government, the disarmament of Hamas, and the deployment of an international security force.⁴⁰ While the Trump administration has suggested a $1 billion "fee" for a permanent seat, Canadian officials have stated they will not pay to join but are willing to provide funds directly for Palestinian welfare.⁴⁰ Carney’s rationale for joining is to influence the board’s structure and the flow of humanitarian aid "from within," emphasizing that unimpeded aid is a "precondition" for progress.³⁹

Board of Peace - Proposed Membership	Status/Role	Context/Details
Donald Trump	Chair	U.S. President and initiator.³⁹
Mark Carney	Member	Joined "in principle" to provide humanitarian oversight.³⁹
Vladimir Putin	Invitee	Controversial inclusion; under Canadian sanctions.⁴⁰
Tony Blair	Member	Former U.K. Prime Minister; technical advisor.⁴²
Marco Rubio	Member	U.S. Secretary of State; executive committee.⁴²
Narendra Modi	Invitee	Part of the broader "inclusive diplomacy" push.²⁸

Advanced Technology and the Defence Industrial Strategy

The "rupture" in the world order has also shifted Canada’s approach to innovation, moving from a purely commercial focus to one that integrates national security and "technological sovereignty".¹ The government has launched a new "Defence Industrial Strategy" aimed at leveraging the $80 billion defense spending increase to build domestic industry in "dual-use" technologies.²⁹

AI, Quantum, and the Global Talent Race

Canada is currently a top developer of AI and quantum talent, yet it suffers from significant "brain drain" to the United States.² To counter this, Budget 2025 allocates $1.7 billion for the "International Talent Attraction Strategy," which aims to recruit 1,000 highly qualified international researchers and provide $1 billion for a new Chair program for exceptional talent.¹⁰ Additionally, the "DI Assist" initiative, funded with $244.2 million through the National Research Council (NRC), provides funding and advice to SMEs developing made-in-Canada defense technologies.³⁰

Sovereign Cloud and Digital Infrastructure

As the world sits on a "precipice" of cyber conflict, Canada is investing in a "sovereign cloud" strategy to ensure that critical data remains under domestic jurisdiction.⁸ This is part of a broader push for digital sovereignty that includes modernizing the payments system through the "Real-Time Rail" system and enhancing the Scientific Research and Experimental Development (SR&ED) tax incentives to a $6 million annual expenditure limit.¹⁰

Natural Resources as Strategic Leverage

In a world defined by "geoeconomic confrontation," Canada’s vast natural resources have transitioned from simple commodities to strategic leverage.² Carney’s Davos address highlighted that Canada possesses what the world needs: energy, minerals, and food.²

The Energy Superpower and the LNG Pivot

Canada’s energy strategy is focused on becoming a reliable, low-carbon energy supplier to the world.² This includes the completion of the Trans Mountain Pipeline, where 70% of shipments are currently taken by PetroChina, and the advancement of LNG Canada at Kitimat to ship significant volumes to Asian markets.² The 2025-26 budget includes accelerated depreciation for low-carbon LNG facilities and hundreds of billions of dollars in investments for nuclear, hydro, wind, and grid infrastructure under the "Climate Competitiveness Strategy".¹⁰

Critical Minerals and Mining Dominance

Canada is a top-five producer in ten of the world's most important critical minerals, and 40% of the world's listed mining companies are headquartered in the country.² The strategy involves using the Major Projects Office to fast-track exploration and development, such as the Upper Kobuk Mineral Projects, to secure supply chains for "trusted partners" and reduce global reliance on adversarial states for copper, cobalt, zinc, and silver.¹⁰

Socio-Economic Resilience and the Domestic Political Context

The shift toward "value-based realism" and high-level international engagement has not been without domestic political friction. The Conservative opposition, led by Pierre Poilievre, has maligned the World Economic Forum as a gathering of "out-of-touch elitists" and pledged a cabinet-wide boycott of the event.¹⁸ However, experts suggest that Trump’s trade war and threats to Canadian sovereignty have increased public acceptance of Carney’s attendance at Davos, as there is a growing recognition that Canada "needs to find allies wherever it can".¹⁸

The Build Communities Strong Fund and Public Services

To address the social pressures created by trade-related inflation and rising costs, the government launched the $51 billion "Build Communities Strong Fund".¹¹ This ten-year program includes:

● A Provincial and Territorial Stream ($17.2 billion) for roads, wastewater, hospitals, and post-secondary infrastructure.¹¹

● A Direct Delivery Stream ($6 billion) for regionally significant projects like retrofits and climate adaptation.¹¹

● A Community Stream ($27.8 billion) rebranding the existing Community-Building Fund to support local infrastructure projects.³³

This fund is coupled with investments in youth employment ($1.5 billion over three years) and measures to address the strain on the health-care system ahead of the 2026 FIFA World Cup, where vulnerabilities in ER capacity and wastewater surveillance are being addressed to prevent outbreaks during the games.¹³

The Gun Buyback Program and Internal Security

As part of its broader mandate to build a "safe and resilient society," the government has initiated the final phase of its gun buyback program.⁵⁰ With an overall budget exceeding $742 million, the program has outlawed approximately 2,500 types of firearms, including the AR-15, with an amnesty period ending in October 2026.³⁵ This move is framed as a matter of "public safety" but remains a point of contention with the opposition and certain provincial governments.⁵⁰

Analysis of Global Perceptions and Future Outlook

The "rupture" of 2026 represents the end of Canadian "illusions" regarding its place in the world.³ The DRM News coverage of the Davos address highlights a growing global perception of Canada as a nation that has "truly arrived" as a middle power, no longer willing to play the "victim card" against superpowers.⁴ Carney’s expertise in granular macroeconomics and his history as a global central banker give him a "gravitas" that allows him to "speak the language" of the global elite, potentially positioning Canada as a bridge between fracturing blocs.¹⁸

Risks of Gradual Accommodation

Despite the "steel" shown by the current leadership, the path of "value-based realism" carries significant risks of "gradual accommodation".²³ In seeking diversification, Ottawa risks normalizing engagement with authoritarian regimes without securing meaningful leverage on civil liberties or security guarantees.¹⁹ The success of the "China deal" and the involvement in the "Board of Peace" will be judged not by communiqués, but by whether Canada can maintain its autonomy during the next inevitable crisis over Taiwan, Arctic boundaries, or supply chain disruptions.²²

The transition from a "colonial economic model" based on resource extraction to a strategic, sector-by-sector industrial plan remains the central challenge for the Canadian state.³⁸ The $1 trillion investment target is a bold benchmark, but achieving it will require sustained political will to overcome "incrementalism" and a "low-investment trap" that has plagued the economy for a decade.⁹

Final Synthesis of the Canadian Strategy

The strategy articulated by Mark Carney at Davos 2026 is a comprehensive attempt to redefine Canadian sovereignty in an era of great-power anarchy.² By building "strength at home" through Budget 2025's massive capital allocations and "resilience abroad" through the pivot to Asian and Middle Eastern markets, Canada is attempting to decouple its prosperity from the volatility of its southern neighbor.²

The "Value-Based Realism" doctrine posits that Canada's independence is a product of its own actions—its ability to fast-track nation-building projects, attract global talent, and lead issue-based coalitions.¹ As the world order continues to fracture, Canada's survival depends on its ability to remain "open for business" while becoming "closed to bullying," leveraging its status as an energy and technology powerhouse to navigate the "brutal reality" of the 21st century.²

The 2026 Davos address, therefore, is more than a speech; it is a declaration that Canada has recognized the "rupture" and is prepared to thrive in the "non-system" that follows, using its unique position as a stable, diverse, and resource-rich middle power to forge a new path for itself and its partners.¹

In solidarity,

Wimal Navaratnam

Human Rights Advocate | ABC Tamil Oli (ECOSOC)

Email: tamilolicanada@gmail.com

Methodology: The analysis presented in this report is derived from a synthesis of primary and secondary source materials available as of January 20, 2026. This includes live video coverage and transcripts from DRM News and the World Economic Forum regarding the Davos special address.¹ Economic projections and policy frameworks were sourced from the 2025-26 Canadian Federal Budget and the "Build Canada" initiative documentation.¹⁰ Expert perspectives were incorporated from the Business Council of Canada ⁹, the Asia Pacific Foundation ²⁰, and various international policy journals to provide a balanced geopolitical outlook.²³

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