The Digital Revolution Has Transformed Geopolitics

Seeing can no longer be equated with believing.

July 19, 2023
Illustration by Paul Lachine.

In the late 2000s, a set of connected technological innovations resulted in the generation of truly astronomical amounts of data and provided the tools to exploit it. As the world emerged from the global financial crisis of 2008–2009, data was decisively transformed from what had once been a mostly valueless by-product of commercial transactions — “data exhaust” — to the “new oil,” the essential capital asset of the qualitatively changed data-driven economy.

The trio of technological breakthroughs that powered this transition emerged in the US economic sphere at the apogee of America’s unipolar moment. Deep learning was developed by Geoffrey Hinton at the University of Toronto in 2006 but the techniques were captured first by US firms — in particular, Google. The iPhone was released on June 29, 2007, by Apple, a US corporation. The application of GPUs (graphics processing units) to run neural nets was pioneered in 2009 by Andrew Ng and his team at Stanford University.

The implications were quickly recognized: Google executive Eric Schmidt, speaking at a tech conference in Barcelona in 2010, conveyed the sense of a new age dawning. Schmidt described it as the age of mobile — mobile computing and mobile data networks. He went on to say that “these networks are now so pervasive, we can literally know everything if we want to. What people are doing, what people care about, information that’s monitored, we can literally know it, if we want to and if people want us to know it.”

If history was any guide, the future was bright — both for the world, and the economy that had the first-mover advantage.

How the Knowledge-Based Economy Transformed Geopolitics

Three decades earlier, a similar technological transition had taken place, also led in the United States, ushering in the knowledge-based economy. The significant events in that instance were the political recognition of the importance of innovation and intellectual property (IP) for the US economy signalled by the passage of the University and Small Business Patent Procedures Act (Bayh-Dole Act) in 1980 (now considered one of the most important pieces of legislation for American innovation); the release of the IBM personal computer (PC) in 1981; and the release of computer-aided design/manufacturing (CAD-CAM) software for the PC in 1981–1982, which revolutionized industrial design.

The geopolitical consequences of that shift were profound. Riding a rejuvenated economy driven by innovation, the United States overcame the “Red Sun Rising” challenge from Japan; declared victory in the Cold War with the Soviet Union; achieved the expansion of the rules-based international trading system to cover its new areas of interest — IP and services — through the new Agreement on Trade-Related Aspects of Intellectual Property and the new General Agreement on Trade in Services (included in the agreement that founded the World Trade Organization); enjoyed an exhilarating technology boom in the late 1990s that saw its key technology index, the NASDAQ, rise to stratospheric heights; and enrolled its former adversaries into the rules-based order with a treaty between the North Atlantic Treaty Organization (NATO) and Russia, and China's entry into the WTO. Heady stuff.

The Data-Driven Economy Turned Out Differently

Things could not have been more different following the technological revolutions that ushered in the data-driven economy. By the early 2020s, at the end of the first decade of this new economy, even as US corporations exploited their first-mover advantage to become global giants with trillion-dollar market caps, the United States was back on its heels and the world had descended into social, geoeconomic and geopolitical turmoil.

America had begun tearing itself apart internally over social issues (guns, abortion, vaccination, immigration and race) and soon was being compared to a failed state. Indeed, the question of whether it is on the brink of a second civil war has been actively debated, especially following the storming of the US Capitol on January 6, 2021. At the same time, the United States is now waging a full-scale defensive technological war against China, a country that was barely on the technological map in 2010.

Europe, an integral part of the trans-Atlantic anchor for the globalization experiment embodied in the WTO, has been reduced by Brexit, and is seeking to find its footing in “strategic autonomy,” riven by internal strife along multiple fault lines, and trying to cope with a twentieth-century war on its eastern frontier launched by a revanchist Russia. And the global governance system developed in the postwar era is seemingly incapable of dealing with the confluence of multiple intersecting crises (which has been described as the polycrisis).

How is all this to be understood? How could the United States, which had parlayed its opening advantage in the computer revolution into a 30-year run to global economic and political dominance, not only lose its first-mover advantage but see it devolve on all fronts?

The technological and economic conditions of the data-driven economy provide a unifying explanation.

China began to change the equation in the 2010s with a major program aimed at developing its capabilities in generating IP.

The United States and China

The United States and China were on a confrontational path long before the dawn of this new era, given the long-standing US policy of slowing China’s rise as an economic and military power. However, even as late as 2008, the relationship was one of “tacit allies.” In his 2008 State of the Union address, President George W. Bush mentioned China only once, in the same breath as India, in a statement on the importance of large emerging markets for environmental policy. While President Barack Obama’s “pivot to Asia” in 2009 at the dawn of the data-driven economy signalled American wariness of China’s rise, the main practical move was to advance US interests in having Beijing increase its IP protection — which, according to US analysis, would greatly improve returns to US capital.

China began to change the equation in the 2010s with a major program aimed at developing its capabilities in generating IP. But notwithstanding a breathtaking increase in its rate of patent applications, in 2021 it still trailed the United States by a huge margin in international IP receipts, reflecting the United States’ 30-year lead in entry into the knowledge-based economy.

However, China had entered the data-driven economy simultaneously with the United States and with scale advantages conferred by the size of its population. To many observers’ surprise, China’s internet sector did not wither under censorship behind its Great Firewall. It boomed, supported by the recruitment of technology workers (including from Silicon Valley) and through the promotion of private sector start-ups with government-funded incubators and public sector venture capital.

Companies such as Alibaba, Tencent and Baidu flourished. A bevy of new companies that would become household names were founded, including Meituan (March 2010), Xiaomi (April 2010) and Didi (June 2012). In mid-2014, as Alibaba was going public with its initial public offering, China blocked virtually all Google services in China. As noted by technology researcher Matt Sheehan, “The Chinese government had pulled off an unexpected hat trick: locking out the Silicon Valley giants, censoring political speech, and still cultivating an internet that was controllable, profitable, and innovative.”

And when China did surprise US policy makers by taking the lead in global markets in a critical area — fifth-generation (5G) telecommunications technology — the United States was galvanized into urgent action, unleashing what amounted to a relentless, full-spectrum geoeconomic blitzkrieg — everything short of war — aimed at arresting China’s technological advance. This included prohibitions on the export of US advanced technology to a steadily growing “entity list” of Chinese firms, research institutes and other persons; the forced unwinding of Chinese investments in US data-rich corporations; a heavily criticized “China Initiative” by the Justice Department targeting Chinese researchers and university professors to root out suspected technology theft; guidance to US universities to review their technology partnerships with Chinese entities; and intense diplomatic efforts aimed at getting third countries to reject Chinese 5G technology and not join China’s Belt and Road Initiative — among other measures.

The arrival of the new general-purpose technologies of the data-driven economy, combined with the accelerated pace of innovation they allow, has had the effect of propelling the relationship between China and the United States from competition toward confrontation.

The United States and Europe

Over the long postwar era, the US-EU bilateral trade relationship was the largest in the world and their mutual agreement on trade rules was essential to the elaboration of the multilateral framework. Similarly, in the security domain, NATO was the paramount alliance for both parties in the West's Cold War standoff with the Soviet Union. The transformation of “business as usual” frictions between the United States and the European Union into the Union seeking “strategic autonomy” was therefore unexpected.

The direct contribution of the technological and economic conditions of the data-driven economy to this sharpening conflict was principally in two areas: divergent policy positions on data and on privacy; and conflict over economic rents.

  • The Schrems decision by the Court of Justice of the European Union in 2015 invalidated the “Safe Harbor” framework that had been developed to govern EU-US bilateral data flows.
  • Lacking its own digital platforms, the European Union was the first major jurisdiction to move against the market power of the digital platforms, including Google, Amazon and Apple, while also levying fines on Facebook for data privacy breaches.
  • EU member states developed plans for digital services taxes to capture part of the benefit that the major platforms derived from operating in a jurisdiction on a virtual basis. In 2020, Donald J. Trump’s administration walked away from international tax negotiations at the Organisation for Economic Co-operation and Development (OECD) and warned that it would retaliate if EU member states proceeded with plans to impose such taxes, which, even though not nominally targeting US firms, would primarily hit these firms.
  • To develop its own digital economy champions, the European Union implemented a Digital Single Market program and adopted associated industrial policies that aim to capture leading positions for Europe in the data-driven technologies.

Accordingly, as the data-driven economy decade progressed, the United States and the European Union drifted apart, with the main impetus arguably coming from the technological and economic conditions of the data-driven economy. There were further indirect complications, to which I return below.

The EU-China Relationship and the Three-Body Problem

The EU-China relationship entered a chaotic period with the dawn of the data-driven economy. As the forces driving rifts between the United States and China and between the United States and the European Union mounted, the European Union and China were driven closer, awkwardly from the EU perspective. China is a major growth market for EU exports; at the same time, there are many points of system friction between the two on governance, human rights and industrial policies.

Europe sought to rationalize this by staking out a structured position regarding its relationship with China, as a cooperation partner in areas where they have closely aligned objectives, as a negotiating partner where a balance of interests needed to be struck, as an economic competitor in the pursuit of technological leadership, and as a systemic rival when promoting alternative models of governance. China similarly courted the European Union as its largest export destination and an important destination for outward investment through the Belt and Road Initiative, including in assets such as the Greek port of Piraeus and the heavily subsidized China-Europe Railway Express. In the data-driven economic context, China listed numerous areas of cooperation to be pursued, including developing “Digital China” alongside the EU Digital Single Market, cooperation on 5G, and implementation of the General Data Protection Regulation.

This dynamic thus resulted in seemingly contradictory outcomes such as the conclusion of the China-EU Comprehensive Agreement on Investment, blindsiding the incoming Joe Biden administration, while Europe was also working jointly with the United States and Japan on a program to countervail China’s industrial subsidies, and later joining the United States in a new Trade and Technology Council to pre-empt the emergence of new frictions between the two.

Here, we can draw an analogy to the three-body problem in physics, which refers to the impossibility of analytically predicting the motion of three celestial bodies interacting through gravity. In the postwar period, the United States and the European Union were tightly coupled, with largely compatible economic and political governance systems. The result was stability and predictability. However, the rise of China created a new gravitational force that tugged at this coupling. And then came the shock to this system caused by the advent of the data-driven economy that nudged Europe away from the United States. Just as the gravitational forces between celestial bodies can lead to unpredictable and chaotic motion, the interplay of economic, political and strategic factors among these three powers has led to apparently contradictory outcomes and instability.

This was amply evidenced by the reactions in Europe to the visit by France’s President Emmanuel Macron to China in April 2023, where he talked up “strategic autonomy,” even as he pursued commercial engagement. Significantly, Macron came away with no Chinese commitment to rein in Russia, dismaying Eastern Europe, which continues to look to the United States for defence support given the incapacity of Germany to fulfill its NATO obligations, let alone take on Russia if push were to come to shove in a no-longer-unthinkable conventional war.


The interplay between the three main data powers under the technological and economic conditions emerging in the data-driven economy was complex enough. There was, however, another player in this system. Russia had its own agenda and its own assets to exploit.

Historically, the Soviet Union had waged “non-kinetic” war with the West over political, economic and social ideologies. The term of art used in the Soviet Union was “active measures.” Ivan Kalugin, a prominent defector, describes these as measures used “to weaken the West, to drive wedges in the Western community alliances of all sorts, particularly NATO, to sow discord among allies, to weaken the United States in the eyes of the people of Europe, Asia, Africa, Latin America, and thus to prepare ground in case the war really occurs. To make America more vulnerable to the anger and distrust of other peoples.”

While the Soviet Union had lost the Cold War, the capabilities it acquired to wage information warfare did not evaporate when it threw in the towel. Nor was the stock of influence over public opinion in the rest of the world entirely written off. Rather, it was transferred to Russia as the main successor state to the Soviet Union.

As Russia came out of the emerging market crisis of 1997–1998, it also came under the leadership of Vladimir Putin, whose career had begun with a 16-year stint as a foreign intelligence officer in the KGB, essentially serving on the front lines of Russia’s information war. Coincidentally, as noted by foreign policy scholar Stephen Blank, “Beginning with Chechnya in 1999–2000 and through the conflicts in Estonia, Georgia, and Ukraine, Moscow has systematically employed its concepts of IW [information warfare].”

The internet greatly facilitated information warfare, and the rise of social media in the data-driven economy was a force multiplier. Figuratively, it put “active measures” on steroids. Data, in this context, was fissile material — the “new plutonium.”

The data-driven economy played to Russia’s strengths. Moscow was not slow to exploit the new information environment to play itself back into the geopolitical game. Most importantly, it did this by deploying its information warfare capacity in the 2016 US presidential campaign, leveraging social media in support of candidate Trump, to which I return below.

Russia’s engagement is illustrated by the case of “Donbass Devushka” (translating as “Donbas girl”), a Twitter persona that purported to be a woman from occupied Donbas, tweeting pro-Kremlin messages, but turned out to be an American ex-Navy non-commissioned officer living in Washington State and managing the Twitter account with a team of 15. This came to light because of the revelation of the role of “Donbass Devushka” in disseminating the aptly named “Discord” leak of Pentagon information.

Social Media and Data-Driven Disinformation

The data-driven economy facilitated a business model that leveraged the data gathered from social media and e-commerce engagement to generate profit. The externalities associated with this, however, which gave rise to what has been termed “The Disinformation Age,” went ungoverned and enabled the generation of social chaos — both spontaneous and engineered — at least in the economies with open information space.

In the economies with closed information spaces, by contrast, the social manipulation enabled by the data-driven economy technologies helped to entrench established power. In his book The Age of The Strongman: How the Cult of the Leader Threatens Democracy Around the World, Gideon Rachman documents the new authoritarianism that has emerged in both democratic and autocratic systems. That the age of the strongman also happens to be the age of the data-driven economy and the age of social media is, I would argue, no coincidence.

Taken together, the negative externalities, such as the online spread of falsehoods or “alternative facts” and the erosion of confidence in science and governance through social media attacks on “elites,” “mainstream media” and so forth, greatly amplified the geopolitical nudges that the data-driven economy had already set in motion.

The Wild Card

The wild card that emerged was Donald J. Trump, the seemingly unelectable candidate, who was elected amid charges of foreign interference conducted primarily through social media, and who governed by tweets — a true creature of the digital transformation. His administration adopted commercial policies that were damaging to America and its allies alike, undermining the confidence of the latter, while at the same time driving adversaries into new alliances.

Whether Trump was under the influence of Vladimir Putin or whether he was the result of the spontaneous combustion of disinformation and divisiveness to which social media is prone is, for practical purposes, moot: his policies worked as if scripted — emphasis on the “as if” — to consolidate anti-American sentiment, undermine international institutions, promote the dismemberment of Europe (through Brexit), and leave the rump European Union divided as Vladmir Putin attacked Ukraine and the US-led system on which Europe had for decades relied. The West was wholly unprepared to deal with the consequences.

It is one thing to look back and seek to puzzle out why and how this happened; it is another to attempt to comprehend what this means as we go forward.

And Geopolitics Was Changed

In effect, the technological and economic conditions of the data-driven economy transformed geopolitics. The wave was at first modest, but grew rapidly. Since February 24, 2022 (one could perhaps backdate this to February 4, 2022, when the Xi-Putin “no limits” pact was announced), the cumulative impact has been epochal.

It is one thing to look back and seek to puzzle out why and how this happened; it is another to attempt to comprehend what this means as we go forward. This is because yet another technological revolution is upon us with the pervasive introduction of artificial intelligence (AI), with myriad economic, social and military applications.

Based on truly major advances in multiple dimensions since the beginning of the present decade — including scale and variety of specialized AI chips, the scale of AI models, especially large language models, and vastly improved training protocols, as I’ve outlined elsewhere — we are now in a new economic era of machine knowledge capital, graphically illustrated by the steep upturn in AI patents around the beginning of the present decade.

In this economy, AI becomes a ubiquitous factor of production, including generative AI applications (such as ChatGPT in developing text and Midjourney in developing images) and a new age of autonomous machines, using AI platforms such as NVIDIA’s Jetson Orin, which claims to be able to perform up to 275 trillion operations per second and to offer eight times the performance of the previous generation. Small steps.

Already these new applications are sending shock waves through societies. But what we have seen to date is just prologue: hundreds of thousands of firms around the world are developing AI applications on a range of platforms, ranging from superstar firms using their own customized AI chips, to upscale start-ups using cloud-based “Software as a Service” (SaaS) offerings, to entrepreneurs using desktop workstations from NVIDIA pre-installed with AI development tools such as TensorFlow and PyTorch — yours for US$4,416.50 and up — ushering in the garage band era of AI development.

Moreover, the fusion of AI text and image generation that has caused sensation and consternation is just the start: Meta, the company formerly known as Facebook, has announced its ImageBind AI system, which claims fusion of six modalities — text, image/video, audio, depth, thermal and spatial movement. Yes, there is a bit of corporate hype — the “sensational six” in Meta’s promotional pitch — but workers of the world should sit up and take notice.

And then we come to the geopolitics. AI has become the epicentre for geopolitical conflict, with the United States and China going head-to-head with asymmetric capabilities. The United States is again at the leading edge of this technological revolution, with 14,700 AI startups, compared with 2,017 in China. The United States also had 52 AI unicorns to 19 for China, at the end of 2022. The Sullivan Doctrine stipulates that the United States sees it as essential that it not only maintain a lead in AI but that that this lead be as large as possible.

However, China is also on a mission, having filed 389,571 patents in the area of AI, or 74.7 percent of the world total, over the period 2011–2020. Moreover, China has many scale advantages:

  • China has about 50 percent of the world total of installed industrial robots and registered 44 percent growth in 2021; this positions China to deploy ever-smarter robots into an existing robot-using production system.
  • China has 2.73 million 5G base stations as of May 2023, more than 60 percent of the world total, which positions it with the most extensive infrastructure for autonomous machine use.
  • Chinese drone manufacturer DJI holds approximately 70 percent of the global market for drones; this positions China for the deployment of low-level autonomous devices.
  • Two hundred thousand companies and 5.35 million developers are using Baidu’s AI development platform PaddlePaddle — presumably most of them Chinese.

We begin this latest new era with a geopolitics forged in the data-driven economy, one that is inherently unstable (the three-body problem), and that is already being reshaped by the battle to dominate AI. The international institutional structure has not kept pace. What we have was developed under American tutelage during its unipolar moment and no longer reflects the actual power structure of the world.

Moreover, our institutions of economic governance, most notably the WTO, were designed for the knowledge-based economy and have been only partially and minimally updated for the data-driven economy. The value of data has not yet been formally recognized in production and trade accounts or economic agreements such as the OECD/Group of Twenty Inclusive Framework. We have barely started to think about the implications for WTO rules of trading “products” with agency.

Our social institutions have not had time to evolve to deal with the vulnerabilities opened up by the world of social media, of surveillance by both state and capitalism, and of meme-driven messaging. The new “ism” stalking the world is not written down in a manifesto. It is rather a data-driven paradigm created by machine-learning-trained algorithms, using techniques developed for the “attention economy” that sow divisiveness by mining big data to identify and exploit the fault lines in society.

Narratives and memes now crowd our information space — and what we “know” depends on the information to which we are exposed — whether we see “facts” or “alternative facts.” Narratives do not have to make sense or stand up to serious scrutiny; all they require is endless repetition. This reflects the internet adage known as Brandolini’s law, which holds that the effort required to refute a falsehood is an order of magnitude larger than the effort required to create it in the first place.

Today, the world is at war — hot war, cold war, technological war, trade war, social war and internecine political war — and the United States, which pioneered the technologies that have played a decisive role in generating these wars, is (shockingly) playing defence in a profoundly altered geopolitics. This is beyond surprising.

The digital transformation has almost fully devalued words and images and gestures through machine-driven proliferation. Seeing is no longer to be equated with believing. To stay in the new geopolitical great game, open information societies such as the Western democracies must somehow navigate a perilous passage between disintegration of the information fabric of our society and content moderation; by whom, and on what basis, is as yet unknown. This must be effected, if we are to get to what really counts, which is action to manage the tangible world in which we actually exist and without which the virtual world of intangibles — including the emerging metaverse — evaporates like dew in the morning sun.

The opinions expressed in this article/multimedia are those of the author(s) and do not necessarily reflect the views of CIGI or its Board of Directors.

About the Author

Dan Ciuriak is a senior fellow at CIGI, where he is exploring the interface between Canada’s domestic innovation and international trade and investment. He is the director and principal of Ciuriak Consulting, Inc.