It will likely take many years before U.S. allies can realistically consider reducing their dependence on American military power or mounting a serious challenge to the technological dominance of Silicon Valley.
Yet in an ironic development—given Donald Trump’s long-standing enthusiasm for tariffs—trade in physical goods is emerging as one area where U.S. partners are discovering they have more flexibility than previously assumed, and where adaptation can happen relatively quickly.
No major economy is attempting a full break from the United States, which remains the world’s most profitable consumer market despite a bipartisan shift toward protectionism that predates Trump’s return to office.
Instead, a rapid redrawing of global trade relationships—accelerated by a flurry of bilateral agreements in recent weeks—has focused on “de-risking” exposure to the U.S. This concept, until recently, was more commonly applied to China.
As with any form of insurance, diversification comes with costs. These include reworking supply chains and, in some cases, making uncomfortable compromises with partners that do not fully share the same values. So far, however, the economic price appears manageable.
“Trade is one of the areas where middle powers have the greatest ability to make independent choices,” said Alexander George, senior director for geopolitics at the Tony Blair Institute for Global Change.
He pointed to the European Union, noting that Trump’s trade threats helped concentrate minds in Brussels. That pressure contributed to the signing of the long-delayed EU–Mercosur trade agreement with Latin America and a new trade deal with India.
Global economy absorbs shifting trade ties
Free trade agreements remain politically and legally complex. Whether the EU can fully ratify the Mercosur deal will test its ability to act decisively. Similarly, recent efforts by Britain and Canada to reset relations with China still face obstacles after years of deteriorating ties, despite warmer rhetoric and some early agreements.
Businesses, however, are not waiting for governments to finalize the new trade architecture. The Irish Whiskey Association quickly welcomed the EU–India deal, calling it critical to efforts to find new markets and offset the impact of a 15% U.S. tariff, imposed on its largest export destination.
Despite Europe’s cautious stance on China, German investment there reached a four-year high last year. According to the IW German Economic Institute, this was partly driven by companies strengthening local supply chains in response to a more hostile U.S. trade environment.
A quarterly Reuters poll of 220 economists reinforced this resilience. Global economic growth for this year is still expected to reach 3%, unchanged from forecasts a year ago, despite supply chain adjustments triggered by shifting U.S. trade policy.
Some economists argue that there may even be long-term benefits to reshaping three decades of globalization dominated by major trading blocs. This view echoes calls from Canadian Prime Minister Mark Carney for “middle powers” to build a network of alliances among themselves.
“You solve two problems at once,” said Ngozi Okonjo-Iweala, head of the World Trade Organization, speaking at the World Economic Forum in Davos. She noted that diversification creates jobs, improves resilience, and reduces overreliance on single production hubs.
For most countries, diversification remains a safer strategy than direct confrontation with Washington.
Research by Aston University in the UK found that even if tensions over Greenland had escalated and the U.S. imposed a 25% tariff, European incomes would have fallen by just 0.26% per capita if Europe chose not to retaliate—less than half the cost of imposing counter-tariffs on U.S. goods.
Building new international partnerships may also prove easier than pushing through difficult domestic reforms, particularly for governments with fragile parliamentary majorities, said Mujtaba Rahman of the Eurasia Group.
“Trade diversification is clearly underway in Europe,” Rahman said, though he cautioned that progress on deeper reforms—such as unifying fragmented capital markets—remains slow.
Trade risks could become geopolitical fault lines
Two major factors could limit how quickly countries and businesses adapt to U.S. trade shocks.
First, China’s reluctance to stimulate domestic consumer demand means it cannot replace the U.S. market as a source of global demand. The Tony Blair Institute noted that while China’s exports have increased following higher U.S. tariffs, its imports have stagnated, forcing other economies—particularly in Asia and Africa—to absorb widening trade deficits.
Second, there is the risk that the United States responds forcefully to diversification efforts, using its economic influence to discourage partners from drifting away.
“The key question is whether this turns into a geopolitical fault line,” George said.
