(The opinions expressed here are those of the author, a columnist for Reuters.)

LONDON - Donald Trump's Greenland tariff threat and U-turn last week may have been a watershed for the world's "middle powers." For them, rebooting globalization - with or without Washington - now looks far more realistic than it did ‍during last year's trade shock.

This year, the ‍U.S. president has shifted from using tariffs mainly to air long-standing trade grievances to wielding them as tools of territorial and military leverage. And for the first time, that strategy has met firm resistance and ​credible retaliation, forcing a climbdown.

Equally important, Europe, Canada and other economies are ploughing ahead with trade liberalisation of their own, even as the U.S. retreats into protectionism and an increasingly aggressive trade posture.

If Trump's aim is to extricate the U.S. from a multilateral rules-based trade ⁠system and replace it with a purely transactional one, few now believe they can dissuade him.

But the rest of the globe seems determined not to follow - and still believes it can preserve much of what Trump is trying to dismantle.

Fast positioning himself as ⁠the ‌torchbearer for what he terms the "middle powers," Canada's Prime Minister Mark Carney offered a clear alternative to Trump's vision at the World Economic Forum in Davos last week.

He said that even if a rules-based global order is now over, Canada and other "middle powers" can act together to avoid being victimized by American hegemony.

"When the rules no longer protect you, you must protect yourself," he said.

Just back from trade negotiations with ⁠China's President Xi Jinping, Carney's reward for such "protection" was another wild Trump threat this weekend of 100% tariffs on Canadian goods.

But it's not just Canada.

The European Union, having finally flexed its considerable trade muscle over the Greenland issue, has also stepped up its trade negotiations around the world. It has finally wrapped up 25 years of talks with South America's Mercosur bloc and looks set to conclude bilateral negotiations with India this week, cutting tariffs on EU cars and Indian steel.

Last year, the EU finalised deals with Mexico, Indonesia and Switzerland. Vietnam is also next on the list.

India, faced with a collapse in bilateral talks with Washington, also finalized a trade deal with Britain and New Zealand last ⁠year. Carney, meantime, is set to visit India in the first week ​of March and sign deals on uranium, energy, minerals ​and artificial intelligence.

And so on.

'GLOBAL TRADE ORGANIZATION?'

Writing from Davos last week, the U.S. Council on Foreign Relations President Michael Froman said he did not see Canada and the European powers abandoning the U.S. but instead seeking "coalitions of the willing" to ‍forge a new geopolitical equilibrium.

"Derisking, a term originally coined by European Commission President Ursula von der Leyen to describe the European Union's strategy toward China, is now being deployed against the United States," Froman wrote. "Diversification away from the United States - certainly in trade and potentially in financial assets - development of indigenous defense capabilities, ​and long-discussed agendas of reform are top of the agenda."

That seems like a looser construct than a new multilateral rules-based world order "ex-USA". But it is leaning in a direction some influential figures advocated during the trade storms of last year.

Former senior IMF and World Bank official Anne Krueger last year talked of World Trade Organization members creating a new Global Trade Organization that would bind the EU, Canada and Trans-Pacific Partnership groups together under the original WTO agreement and dispute settlement systems.

She noted that when the U.S. blocked appointments to the WTO's appellate body during the first Trump administration, 47 members formed an alternative dispute settlement body that allowed resolutions without the United States.

The U.S. accounts for 10-12% of world exports, she points out, but a GTO without it would account for some 60%.

"Its collective bargaining power would far exceed that of the United States, rendering Trump's divide-and-rule tactics ineffective," Krueger wrote for the Project Syndicate commentary site. "More importantly, such unity might eventually persuade American policymakers to return to rules-based cooperation."

Froman at CFR said that he sensed in Davos a rough consensus that leaders were abandoning strategies designed to change Trump's mind and convince him that he's wrong.

"They are focused instead on cooperating — bilaterally and plurilaterally — with each other to explore ways to exercise leverage in their relations with the United States and to lessen their dependence on it."

What does it all mean for the global economy and world investment?

The latest IMF updates show remarkably little damage on the surface for ⁠the world economy from last year's shakeup. But multiple cross-currents make that difficult to read cleanly and it's likely such seismic shifts in the world ‌order may not act like a shock but take years to sink in and be measured.

For markets, cross-border investment and the dollar's role in an "ex-USA" trade system will bear far closer watching. With colossal foreign exposure to U.S. assets - built up partly as a quid pro quo for sustained trade surpluses - and the White House's barely concealed desire for a weaker dollar to aid its trade push, the rest of the world may muddle through. But it's not a great picture for Wall Street.

The opinions ‌expressed here are those of ⁠the author, a columnist for Reuters.

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(by Mike Dolan; Editing by Marguerita Choy)


Reuters