It's the end of the world's economic order as we know it
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Illustration: Sarah Grillo/Axios
The world economic order is shifting beneath our feet, as historic allies look to America-proof their economies. President Trump's latest tariff announcement will accelerate the shift.
Why it matters: Global leaders and corporate executives alike are trying to figure out how to rejigger their economies to be less reliant on the U.S. in the longer run, even as they contemplate near-term retaliatory measures in hopes of lessening the tariff pain.
- Any economic delinking won't happen overnight. But the sense in Canada, Europe, and beyond is that their relationship with the U.S. has irreparably changed for the worse.
What they're saying: "Investors will be shocked how much things are going to move away from the US in standards, networks, and infrastructure — as well as services — in coming years," said Adam Posen, the president of the Peterson Institute for International Economics and a former Bank of England official.
- "The breach of trust and evident short-sighted self-dealing by the Trump Administration with regard to NATO and to trade reinforce each other," Posen, who just returned from a trip to Ottawa and has been speaking with European officials, added.
- "They make it more likely that Europe and the US will increasingly diverge in coming years economically as well as in security."
Driving the news: Top European Union official Ursula von der Leyen said the bloc was in the process of finalizing retaliatory measures for steel and aluminum tariffs.
- Next comes a potential response to the 20% across-the-board tariffs on European goods.
- "We are now preparing for further countermeasures, to protect our interests and our businesses if negotiations fail," von der Leyen said.
What to watch: In Europe and Canada — two of America's largest trading partners — officials have been blunt about the realities of a global system where the United States is less prominent.
- Germany has ditched its debt-averse mindset and ramped up borrowing for mega-investments in its defense sector in the wake of U.S. threats to back out of NATO.
- Canadian Prime Minister Mark Carney said last week that the country's U.S. relationship "based on deepening integration of our economies and tight security and military cooperation is over."
- He added that Canada would "fundamentally reimagine our economy" in a way that might make it less reliant on America.
That sentiment was echoed in a recent conversation with one of Canada's leading business trade groups.
- "A lot of Canadians feel hurt and upset," Doug Griffiths, head of the Edmonton Chamber of Commerce, tells Axios. "We are looking at investments that make us less dependent on the U.S.," he added. "I think we will ultimately be stronger, but I worry about you guys."
The intrigue: The value of the U.S. dollar has fallen sharply against other major currencies in the last 24 hours — in contrast to economic theory that predicts higher tariffs would drive a currency up.
- Analysts attribute the move to a sense that the U.S. may no longer serve its unique role in the global economy.
- Thierry Wizman, a foreign exchange strategist at Macquarie, writes that the role of the dollar as a safe haven "was already attenuating" in the first quarter, amid a "loss of American exceptionalism under the push for a more 'autarkic" trade regime."
The bottom line: In the short term, economists anticipate higher global inflation and slower world economic growth from Trump's tariff suite.
- But the potential economic delinking that plays out alongside those conditions might be more daunting.
