The world is hedging its bets

THERE are moments when you can feel the geopolitical tectonics shifting below your feet. Such a moment is upon us as the second year of US President Donald Trump’s term begins.

The world that Trump inherited was based, to a remarkable degree, on US commitment and power. That power surely persists one year later.

But as we have seen at the World Economic Forum in Davos, Switzerland, this week, global confidence in US leadership is ebbing at an increasing rate.

In November 2025, I wrote about the “great global hedge” that was happening as countries pursued new capabilities and combinations to protect themselves.

In 2026, that process will accelerate, as countries race to reduce reliance on a seemingly out-of-control America – and even US allies search for ways of deterring US power.

The contemporary international system is profoundly US-centric. Washington runs the alliances that regulate the affairs of key regions. It owns the principal global reserve currency and practises nuclear deterrence on behalf of the democratic community.

America has long provided public goods, such as freedom of the seas, and convened collective action against terrorism and other scourges. The architecture of the modern world was made in the US.

Eroding confidence

Much of that formal architecture still stands, but faith in it is crumbling. Many European governments doubt that Trump’s America is still friendly. Day-to-day alliance relationships are better in Asia, but concerns about America’s direction are growing there as well.

As Trump hurls tariffs, shows contempt for international law and seeks territorial concessions from allies, dependence on an unreliable superpower threatens to become an awful liability. Hence, the great global hedge is underway.

New partnerships, strategic and economic, are emerging. The trade deal between the European Union and the Latin American coalition Mercosur was years in the making, but its conclusion in January 2026 was an unmistakable response to Trump.

South American countries hope to diversify trade relationships in order to deal with a domineering America, while Europe seeks new commercial options amid transatlantic tensions.

Saudi Arabia, worried about an erratic and transactional president, concluded a defence treaty with Pakistan last autumn. Countries throughout the Indo-Pacific are pursuing tighter security links with one another, partly as insurance against future US disengagement.

Likewise, states that have long armed themselves with US weapons want alternatives. Germany is redirecting money it once spent on US arms to domestic and European production.

Even before Trump threatened Greenland, Denmark opted for French-Italian missile defences over American-made Patriots. If the arsenal of democracy cannot be trusted, European arsenals must be strengthened instead.

Self-help is the order of the day. US allies in Europe and the Western Pacific are hiking defence spending in response to US pressure. But they are also building a bridge to an era in which they might have to fend for themselves.

Several European states – including France, Germany, Sweden and America’s staunchest ally, the UK – recently tried to deter Trump from taking Greenland by sending token military deployments to the island, something that would have been absurd, unthinkable in the past. Canada is reportedly making contingency plans to resist an armed invasion by the US.

If Washington tires of alliance commitments while energising its efforts to take territory from other states, expect a more extreme form of deterrence and diversification – the spread of nuclear weapons. Nuclear hedging strategies are already under serious discussion in capitals from Seoul and Tokyo to Stockholm, Warsaw and Berlin.

A third path

Jilted US allies are even revisiting their dealings with Washington’s foremost rival: China. On Jan 13, Canadian Prime Minister Mark Carney travelled to China to forge a new “strategic partnership” – and blow a hole in the North American tariff wall against Chinese electric vehicles. In Davos this week, Carney called for middle powers to forge a “third path” between Washington and Beijing.

More broadly, writes the academic Ivan Krastev, Trump “is making the world fall in love with China”. To a broad sampling of global publics, Beijing looks more influential and less threatening than it did on Inauguration Day 2025.

Even so, hedging is hard and dangerous. There is no substitute for US security guarantees in the short term – that’s why Nato allies are desperately trying to get Washington into Ukraine, as part of a potential post-war stabilisation force, even as they desperately try to keep the US out of Greenland.

Developing nuclear weapons is expensive and risky, and might be a tough political sell. The EU’s ability to act with purpose is hindered by disagreements on key diplomatic and security matters. Carney’s Beijing gambit notwithstanding, there are no cuddly great-power alternatives: Russia and China are far nastier than the US.

Trump, for his part, punishes those that defy him. He has demanded that allies buy more US weapons while pledging to sanction those who seek to limit dependence on the dollar.

The world will enter an age of terrible instability if new security, economic and political structures do not arise before the old ones are hollowed out. For that reason, the hedging will intensify in 2026.

Trump raised the prospect of real coercion over Greenland last weekend, by threatening to impose punitive tariffs on eight European countries unless they handed over the island to him. He may now be backtracking in the face of a bad market reaction.

But he has given the world a glimpse of a future in which the US joins the ranks of the revisionist powers seeking to redraw the map through threats and force.

That is exactly the sort of scenario that will give greater urgency to strategic diversification – and perhaps even turn a great global hedge into a great global rift. BLOOMBERG

The writer is the Henry Kissinger distinguished professor at Johns Hopkins University’s School of Advanced International Studies