When significant powers want to send each other messages without escalating to full out war, they use smaller satellite states to deliver their messages. This is what happened during the cold war between the Soviets and the US. It's what's happening between the US and China.
If china or the US or russia or any major power wanted to send a message to small countries, they'd do so directly. Like we do with canada or China does with north korea or russia does with the smaller ex-soviet nations.
If the American (or, I'd guess, Canadian) foreign policy arm had its way, this arrest wouldn't have happened. Unfortunately, rule of law. An independent prosecutor issued warrants which were confirmed by a court and executed by police.
The concept of independent agencies doesn't exist outside a small number of countries. It can be difficult for an elite in Beijing to believe the American president has no power to halt the proceedings against Huawei's CFO. This is, at its core, the mis-understanding. Not Cold War proxy war dynamics.
There is no misunderstanding. Everyone involved knows exactly what is going on. It's international politics. The only question is how this is resolved. Will it escalate or will the US and china achieve a compromise?
Beyond enforcement of multilateral sanctions (especially the NK ones), the US and Canada (and the UK) could make it much more difficult for the elites to move assets out of China. Ban anonymous ownership of property, and start enforcing Chinese currency-control laws on government-connected individuals. Sure, President Xi might be able to evade Chinese law in China, but good luck convincing the Southern District of New York to look the other way.
Any ethical concerns aside, why would we break our own laws when enforcing them (and China's as written) is much more effective?
Beijing doesn’t care about the average Chinese. But its elites? It cares as much as any other government.
Aside from the fact that it's morally reprehensible...
For example, we should be subjecting Americans to the TSA bullshit that they dole on others.
They probably understand strongarm tactics won't work on us and are counterproductive. But, I'm sure other small countries are taking notes.