Middle powers start de‑risking from the U.S., pursue a new trade equilibrium
After recent tariff threats and U.S. policy swings, Canada, the EU and other economies are accelerating diversification and new trade arrangements that cut dependence on Washington.
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By Torontoer Staff
Recent moves by the United States, including aggressive tariff threats and abrupt reversals, have accelerated a strategic shift among so-called middle powers. Canada, the European Union and other economies are now prioritizing diversification, plurilateral deals and stronger dispute mechanisms to limit exposure to U.S. pressure.
That shift does not amount to abandoning trade with the United States. It does mean governments are increasingly prepared to pursue trade liberalization and security cooperation with a wider set of partners, even if Washington remains unwilling to play by the same multilateral rules.
Why middle powers are moving
Over the past year the U.S. approach to trade has moved from using tariffs to air longstanding complaints to using them as direct leverage. When that strategy started to meet coordinated resistance and credible retaliation, it signalled to many partners that unpredictability from Washington is no longer episodic. Governments that once relied on the rules-based system are now actively reducing single-country dependence.
The response is pragmatic, not ideological. Officials are focused on securing supply chains, lowering tariff exposure and building legal and financial cushions that make sudden political pressure less disruptive.
When the rules no longer protect you, you must protect yourself.
Mark Carney, former Bank of England governor
Europe, Canada and others step up
The European Union and Canada have responded by deepening ties with diverse partners and concluding or advancing a string of trade accords and negotiations. The aim is to build alternative routes for goods, services and investment, and to keep dispute-resolution frameworks alive outside of a single dominant actor.
India and several Trans-Pacific partners have also intensified their trade diplomacy after bilateral talks with the United States faltered. Plurilateral groupings and bilateral pacts are emerging as the practical architecture for trade liberalization in the near term.
- The EU is pushing a global trade agenda through bilateral and regional talks.
- Canada is seeking partnerships that reduce dependence on any one market.
- Asian economies are expanding trade ties with Europe and among themselves.
Toward an 'ex‑USA' trade framework
Policy thinkers have started to envisage formal structures that bind like-minded economies, preserving much of the rules-based trade system without full U.S. participation. The idea is not to cut the United States out entirely, but to create viable alternatives that blunt leverage and preserve dispute-settlement norms.
Derisking, a term originally coined by European Commission President Ursula von der Leyen to describe the EU’s strategy toward China, is now being deployed against the United States. Diversification away from the United States, certainly in trade and potentially in financial assets, development of indigenous defence capabilities, and long-discussed agendas of reform are top of the agenda.
Michael Froman, U.S. Council on Foreign Relations president
Former IMF and World Bank official Anne Krueger has proposed a pragmatic route: a new Global Trade Organization among WTO members willing to uphold original WTO rules and an independent appellate mechanism. Her calculation is numerical. A coalition excluding the U.S. could still capture the majority of global trade, giving it significant bargaining power.
Its collective bargaining power would far exceed that of the United States, rendering divide-and-rule tactics ineffective.
Anne Krueger, commentary for Project Syndicate
What this means for markets and investors
On the surface, the global economy has shown resilience. The IMF’s updates have not registered a large immediate hit from last year’s trade turbulence. But structural shifts take time to register in growth, capital flows and exchange rates, and they can reshape investment patterns over years rather than months.
Key indicators to watch include cross-border investment trends, the composition of global supply chains, and any systematic move away from dollar-denominated financial assets. Many economies still hold large U.S. asset positions as part of long-standing trade and reserve strategies. Rebalancing those exposures would be complex and could create market volatility.
- Shifts in supply chains to diversify manufacturing and raw materials sources.
- Growth in plurilateral trade agreements and alternative dispute mechanisms.
- Potential gradual weakening of the dollar’s dominant role if diversification accelerates.
For investors and corporate planners the immediate priority is risk management, not ideology. Firms are mapping dependencies and identifying partners and jurisdictions that lower political and economic concentration risk.
Where this leaves global governance
The current trajectory points to a more layered system, one where bilateral and plurilateral agreements sit alongside remaining multilateral institutions. That system will be messier than the postwar order, but it could preserve many practical mechanisms that support global trade and investment, provided enough states commit to enforceable rules.
Expect a phase of experimentation. Some initiatives will be legalistic, focused on dispute settlement and standards. Others will be strategic, designed to secure critical supply chains and technology partnerships. The outcome will depend on political choices in capitals and the willingness of middle powers to sustain coordination over time.
For now, de-risking is the watchword. Governments and businesses are recalibrating relationships to reduce single-country exposure and to protect the economic levers that matter most to growth and security.
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