Mike Dolan: De-risking America's middle powers, the'middle world' of the ROI-World

Donald Trump's Greenland trade threat and U-turn may have marked a turning point for "middle power" countries around the world. They now see a much more realistic chance of rebooting globalization, with or without Washington.

In this?year the U.S. President has moved from using tariffs as a tool of territorial and militaristic leverage to using them to air longstanding trade grievances. For the first time ever, this strategy was met with retaliation and a credible resistance, which forced a retreat.

Europe, Canada, and other economies continue to pursue their own trade liberalisation, even as the U.S. retreats towards protectionism and an aggressive trade posture.

Few people believe that they can stop Trump from his goal of removing the U.S. out of a multilateral trade system based on rules and replacing it with one based solely on transactional trading.

The rest of the world is determined to not follow Trump's lead, and believes that it can still preserve a lot of what Trump wants to destroy.

Mark Carney, Canada's prime minister, has been positioning himself as a torchbearer of what he calls the "middle power" at the World Economic Forum last week in Davos. He offered a clear alternate to Trump's view.

He said that, even though a global order based on rules is no longer in place, Canada and "middle power" countries can work together to prevent being victims of American hegemony.

He said, "When rules no longer protect you you have to protect yourself."

Carney, fresh from his trade talks with President Xi Jinping of China, was rewarded for this "protection", by Trump's wild threat to impose 100% tariffs on Canadian products.

It's not just Canada.

After finally exercising its significant trade power over the Greenland question, the European Union has also intensified its trade negotiations throughout the world. The European Union has concluded 25 years of negotiations with South America's Mercosur block and is expected to complete bilateral talks with India in the next few days, reducing tariffs on EU steel and cars.

In the last year, the EU concluded agreements with Mexico, Indonesia, and Switzerland. Vietnam is next on the list.

India signed a deal with Britain, New Zealand and the United States last year after bilateral talks with Washington failed. Carney is set to visit India during the first week in March and sign agreements on uranium. energy, minerals, and artificial intelligence.

The list goes on.

'GLOBAL TRADE ORGANIZATION'

Michael Froman, President of the U.S. Council on Foreign Relations (CFR), wrote from Davos in a letter last week. He said that he didn't see Canada and European powers abandoning?U.S. Instead, he is seeking "coalitions" of the willing to create a new geopolitical balance.

Froman wrote that "Derisking," a term coined originally by European Commission president Ursula von der Leyen, to describe the European Union’s strategy towards China, was now being used against the United States. Froman wrote that diversification away from the United States is top of the agenda. This includes trade, financial assets and the development of indigenous defence capabilities.

This seems to be a more loosely constructed concept than a multilateral, rules-based "ex-USA" world order. It is a step in the direction of some influential figures who advocated it during last year's trade storm.

Anne Krueger, a former senior IMF and World Bank Official, spoke last year of World Trade Organization Members creating a Global Trade Organization. This new organization would bring together the EU and Canada groups and the Trans-Pacific Partnership under the original WTO Agreement and dispute settlement systems.

She pointed out that 47 members of the WTO formed an alternative dispute resolution body when the U.S. refused to appoint anyone to the WTO appellate body under the first Trump administration. This allowed for resolutions outside the United States.

She points out that the U.S. exports account for 10-12% of global exports. But a GTO would only represent 60%.

Krueger, a writer for Project Syndicate's commentary site, wrote that "its collective bargaining would far surpass?that of the United States and render Trump's divide and rule tactics ineffective." This unity could also persuade American politicians to return to rules based cooperation.

Froman, CFR's chief economist, said that in Davos there was a "rough consensus" that leaders had abandoned strategies to convince Trump that he was wrong and change his mind.

They are instead focused on cooperating with each other -- both bilaterally and multilaterally -- to explore ways of exercising leverage in their relationship with the United States, and to reduce their dependency on it.

What does all this mean for global investment and the economy?

IMF's latest updates reveal that the global economy has suffered remarkably little from the last year's shaking up. Multiple cross-currents, however, make it difficult to read this clearly. It's also likely that such seismic shifts to the world order will not be felt immediately but may take many years to settle in and to be measured.

Markets will be paying close attention to cross-border investments and the dollar's place in an "ex USA" trade system. The rest of the globe may struggle to cope with the colossal exposure?to U.S. asset - partly built up as a trade-off for sustained surpluses. Wall Street is not happy with the situation.

These are the opinions of a columnist who writes for.

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(source: Reuters)