THE REALITY OF A WORLD AFTER RUPTURE / THE FINANCIAL TIMES OP EDITORIAL

The reality of a world after rupture

Europe has a key role to play in building a successor to the US-led global order

Martin Wolf

© James Ferguson

At the annual meeting of the World Economic Forum in Davos last week we heard Donald Trump deliver a rambling address suffused with his familiar blend of grievance and megalomania. 

We also heard Mark Carney, former central banker and now prime minister of Canada, deliver a brilliant speech on the end of the old order and options for “middle powers”. 

The latter was the bigger event.

Carney began by citing an essay by Václav Havel, writer, dissident and first president of post-communist Czechoslovakia. 

In this Havel argued that communism sustained itself, in Carney’s words, “through the participation of ordinary people in rituals they privately know to be false”. 

In a similar way, Carney argued: “We largely avoided calling out the gaps between the rhetoric and reality” of what we called the “international rules-based order”. 

But in today’s world of weaponised interdependence, “you cannot live within the lie of mutual benefit through integration when integration becomes the source of your subordination”. 

Today, he argued, marks a “rupture, not a transition”. 

He was right.

Carney insisted not only that the old order is not coming back, but that we “shouldn’t mourn it. 

Nostalgia is not a strategy.” 

The following sentence, which is “we believe that from the fracture, we can build something better, stronger, more just”, is a hope, but also not a strategy. 

A sober analyst must ask whether and how far it might become one.

If we are to turn hope into reality, we must realise that the parallel he drew between the lies that sustained communism and those legitimising the old global regime is misleading. 

The former were outright lies: the old regimes of eastern Europe failed on every dimension relative to western Europe. 

The latter, however, were better even than half-truths.

Dispute settlement within the General Agreement on Tariffs and Trade and World Trade Organization, for example, was often effective, even against the US. 

As Carney himself notes: “American hegemony, in particular, helped provide public goods: open sea lanes, a stable financial system, collective security and support for frameworks for resolving disputes”. 

The liberal order was far from mere fiction.

Far more important, the post-second world war period was, in the large, one of huge, indeed unprecedented, success. 

There has been no direct war between great powers since the Korean war in the early 1950s. 

The spread of prosperity and improvements in health across much of the globe has been unprecedented. 

The opening of the world economy to trade and investment has made a vital contribution: any sensible Chinese or Indian person would agree on that. 

As for the difficulties of adjustment in some countries, notably the US, this is due to political choices made by the most prosperous. 

Trump’s chaotic protectionism has been the result. 

But it will fail to succour the people it is supposed to help: it is a fraud. (See charts.)

In sum, integration was a source of both prosperity and vulnerability. 

The system was far from a lie, but has changed into one, as the mercantilism of a rising China interacted with the protectionism of a declining US. 

The result has been to force countries to hedge. 

But, make no mistake, this hedging will be costly.

So, where should we go from here if we are to minimise the losses caused by the rupture? 

Carney’s recommendation is for agreements among “middle powers” as an alternative to a “world of fortresses”. 

His approach is to be based on what Alexander Stubb, president of Finland, calls “values-based realism”: Canada will be “principled in our commitment to fundamental values”, by “engaging broadly, strategically, with open eyes”.

Assume that every middle power moves in a similar direction; where would it work best, where would it work worst and what else might be required if problems are to be solved?

Trade and investment are the easiest areas to sustain. 

The collapse of the old rules creates costly uncertainty, particularly in regard to trade with the US. 

But the latter only accounted for 17 per cent of world imports of goods in 2024. 

Big, but not the only market.

Money and finance are more difficult. 

The middle powers will be vulnerable to extortion by the US over use of the dollar and reliance on the US financial system, without some radical reform. 

Use of the renminbi is not a solution: it just creates another vulnerability.

Security is a still more difficult challenge. 

The world has three nuclear superpowers and two all-round military ones. 

There is a limit to the ability of most middle powers to provide security for themselves and their partners. 

Against some threats — piracy, for example — they may be effective. 

But against others, this will prove harder.

Yet it is going to be even harder to provide certain global public goods, notably action against climate change, if one or more superpowers is fiercely opposed. 

Here global co-operation will be needed, perhaps sanctions against the US.

The more one looks at what lies ahead, the more important, as my colleague Martin Sandbu argues, becomes the EU — in Trump’s eyes, the greatest enemy. 

With every passing day, the EU is having more greatness thrust upon it, in all domains. 

Happily, it is not without weapons. 

As Robert Shapiro, commerce under-secretary under Bill Clinton, notes, Europe’s financial leverage over the US is substantial. It must use it.

In his book The World of Yesterday, written in exile, Stefan Zweig, an Austrian Jewish writer who died by suicide in Brazil in 1942, described the lost world of pre-first world war Europe. 

We are also losing a world. 

It, too, was imperfect, though far better than that one. 

This time, Europe has to be a saviour, not a destroyer. 

The UK, too, will have to join in the struggles now ahead.