WHEN THE INPUTS CHANGE
MARKETS, POWER, AND THE END OF COMFORTABLE FICTIONS
At the World Economic Forum in Davos in early 2026, Mark Carney’s address stood out not for its rhetoric, but for its clarity. Framed around the idea that the global system is experiencing a RUPTURE RATHER THAN A TRANSITION, the speech applied economic reasoning to geopolitical reality in a way that visibly resonated with the audience, culminating in a rare standing ovation.
Carney spoke from Canada’s experience as a middle power deeply integrated into global trade, finance, and supply chains, and therefore among the first to feel the consequences when long-standing assumptions no longer hold. His argument was grounded not in ideology, but in economics: systems behave according to incentives and constraints, and when those inputs change, outcomes change with them.
This paper takes Carney’s speech as a point of reference, not as a response or critique. Its purpose is to explore the economic logic behind the moment that caught the imagination at Davos, and to examine why language rooted in an earlier phase of global integration now struggles to describe how the system is being experienced in practice.
HOW SYSTEMS ACTUALLY BEHAVE
Economic systems are often described in moral or institutional terms, but they are ultimately governed by incentives. Cooperation persists when it is cheaper than coercion. Integration deepens when it reduces risk. Stability endures when predictability outweighs asymmetry.
For several decades, the prevailing global framework broadly met those conditions. Efficiency was rewarded, concentration was tolerated, and enforcement gaps were accepted because outcomes were largely positive. Even where the system was imperfect, the benefits of participation outweighed the costs.
That equilibrium has changed.
When the cost of coercion falls relative to the cost of cooperation, rational actors adapt. This is not a question of values eroding or intentions hardening; it is a matter of behaviour responding to altered constraints. Markets recognise this instinctively. Political systems often lag.
TARIFFS, LEVERAGE, AND THE REPRICING OF RISK
One of the clearest signals that inputs have changed is the evolving role of tariffs. Historically framed as economic tools to correct imbalances or protect domestic industries, tariffs are increasingly deployed to exert political leverage as well as economic pressure.
This shift matters not because tariffs are new, but because their function has changed. They now operate simultaneously as signalling devices, bargaining instruments, and mechanisms of constraint. Once this occurs, they cease to be neutral economic adjustments and become strategic tools.
The same logic applies more broadly. Trade access, regulatory approval, and participation in supply chains increasingly carry conditionality. What was once assumed to be governed by rules and norms is now more explicitly transactional.
For middle powers such as Canada, this is experienced not as theory but as exposure. Since the beginning of last year in particular, the pace and visibility with which economic instruments have been deployed has made previously abstract risks immediate and tangible. What could once be absorbed quietly within existing frameworks now demands structural response.
RARE EARTHS: DOMINANCE BUILT WITHIN THE SYSTEM
The rare earths market provides a clear empirical example of how leverage emerges INSIDE a rules-based framework rather than outside it.
China’s dominance in rare earth production and processing was not established through overt rule breaking. It was built by operating within the system’s tolerated asymmetries: accepting lower margins, internalising environmental and capital costs others externalised, and benefiting from a global preference for efficiency over resilience.
For years, this concentration was viewed as an economic outcome rather than a strategic risk. The system rewarded lower costs and reliable supply, even as dependency deepened. Only once dominance was established did integration itself become leverage.
This is a critical distinction. The system did not fail to prevent dominance; it enabled it. The resulting vulnerability was not imposed externally but accumulated internally over time.
WHEN EFFICIENCY BECOMES EXPOSURE
The same economic logic has since appeared across other strategic domains. Supply chains optimised for scale, cost, and reliability have increasingly been reinterpreted through a lens of dependency and exposure once concentration became visible.
In such cases, market mechanisms alone proved insufficient. Export controls, licensing regimes, and regulatory constraints followed — not as ideological choices, but as economic responses to newly recognised leverage.
This dynamic is not confined to any one country or administration. Many of these mechanisms’ pre-date recent political cycles. What has changed is the explicitness with which they are now applied, and the speed with which they are felt by countries positioned between major powers.
The lesson is not that integration was a mistake, but that integration without regard to concentration creates latent risk. Once revealed, that risk is rarely resolved through markets alone.
WHEN LANGUAGE LAGS REALITY
One of Carney’s most pointed observations was that continued reliance on the language of a “rules-based international order” increasingly obscures more than it clarifies.
This is not an argument that rules no longer exist, nor that institutions have collapsed. It is an argument that the system no longer functions AS ADVERTISED. When description lags reality, risk is mispriced. When risk is mispriced, shocks become more likely and responses more abrupt.
Markets adjust quickly to new information. Political language often does not. The gap between the two is where fragility emerge
WHAT THIS IS — AND IS NOT
This paper does not suggest is decoupling, economic isolation, or bloc formation. Nor does it seek to assign motive or apportion blame. Its focus is narrower: to describe how incentives have shifted, how leverage has emerged, and why behaviour has changed as a result.
CONCLUSION
The standing ovation at Davos was not a response to nostalgia. It reflected a recognition that many in the room were already living with the consequences Mark Carney described.
When economic tools are repurposed as instruments of leverage, when efficiency gives way to exposure, and when language no longer matches experience, systems do not adjust gradually. They rupture.
For middle powers, the challenge is not whether to adapt — they must — but whether adaptation is driven by denial or by realism. Naming reality does not foreclose cooperation; it makes genuine cooperation possible.
Those able to recognise where change is occurring, and to adapt accordingly, will be best placed to navigate the world that is now forming, and the geopolitics within it.