The end of the US-led world order

Model rivalry: from territorial power to network dominance

The models of the powerful countries differ in this respect. Russia offers the classic military-territorial empire. This is not particularly attractive to other countries (see Ukraine). At the other end of the spectrum is the European Union. Here, regulatory goods (norms and standards) are being produced and exported. Mark Carney also addressed this level. The role of middle powers such as Canada could be to build a new international order based on human rights, sovereignty, territorial integrity, sustainability, and solidarity. We should like to point out that only here do ESG standards matter. The European Union is working on this – sometimes with setbacks, even though time is pressing.

While the trade agreement between the EU and the Mercosur countries has been signed, the European Parliament is having the European Court of Justice examine whether the agreement is compatible with EU law. On a positive note, the EU and India have concluded a far-reaching trade agreement to facilitate trade for around two billion people. The agreement aims to reduce tariffs on European cars and wines and to simplify access for Indian textiles and electronics to the EU. China's model can be called geo-economic. The aim here is to achieve or expand dominance in the manufacturing sector, including supply chains and certain raw materials (rare earths). The US model, on the other hand, can be described as network-based. This applies to several important areas, such as finance, technology, and security. Here, we can see how dependent Europe in particular is on the United States.

Tariffs, leverage, and new mechanisms of exclusion

The rivalry between different models of governance means that global public goods are losing importance and so-called club goods are on the rise. Goods (such as free trade) that were once open are becoming bloc-bound, restricted in access, and politically conditioned. The US President's favourite word is actually “tariffs”: these are intended not only to close the US trade deficit, build up the US manufacturing sector, and restructure the budget, but also to exert pressure on trading partners.

Most recently, the US President threatened Canada with punitive tariffs of 100% if Ottawa concludes a planned trade agreement or engages in a more involved trade relationship with China. Threats were also made in South Korea’s general direction: the US President announced that he would drastically increase tariffs on imports from South Korea because the trade agreement between the two countries had not yet been implemented. Overall, international trade is increasingly being hampered by export controls, tariffs, investment restrictions, and sanctions. Accepting the possible end of the transatlantic defence alliance if some NATO members do not “behave well” is also part of the new US order.

Uncertainty reduces predictability

The possible consequences are: states arguing and acting in a revisionist fashion (“this territory actually belongs to us”), less predictable dispute resolution, a higher probability that trade, finance, and technology will become leverage for political goals, higher transaction costs, and more investment in defence, infrastructure, and proprietary technologies. It is also sometimes argued that increased uncertainty reduces predictability and could thus dampen investment appetite.

Risk reduction und diversification

Based on this, governments and companies have consulted the portfolio management textbook: in order to reduce dependencies and build strategic autonomy in certain segments, the political buzzword of the moment is risk reduction (derisking). Governments and companies are diversifying supply chains (reducing dependence on China) and building redundant capacities for energy, commodities (rare earths), semiconductors, batteries, pharmaceuticals, cloud computing, and defence.

US dollar depreciates, gold gains