A year after the tariff shockwave, the world’s reserve currency is bleeding credibility—and investors are voting with their feet.

The dollar is dying, not with a bang, but with a slow, bureaucratic whimper punctuated by presidential Twitter tirades and bond market mutinies.

As of late January 2026, the U.S. Dollar Index (DXY) has collapsed more than 9% from its post-election euphoria peak, now hovering perilously near 99—a level last seen during the pandemic’s darkest months. Gold, that ancient barometer of monetary distrust, has shattered every conceivable ceiling, trading north of $4,600 per ounce. Meanwhile, the euro and Swiss franc—once dismissed as the sickly men of global finance—are outperforming with a vigor that would have seemed fantastical eighteen months ago.

What changed? In a word: policy. Or more precisely, the catastrophic intersection of fiscal recklessness, geopolitical adventurism, and institutional sabotage that has come to define the Trump 2.0 economic doctrine.

This is the story of how America’s currency privilege—forged in the crucible of Bretton Woods and sustained through decades of relative fiscal discipline and central bank independence—is being squandered in real time. It’s a cautionary tale about what happens when a reserve currency issuer begins to behave like an emerging market populist, and the market loses faith not in America’s economic fundamentals, but in its political rationality.

The Liberation Day Hangover: When Tariffs Became a Credibility Tax

Let’s rewind to April 2, 2025—what the administration dubbed “Liberation Day.” President Trump unveiled a comprehensive tariff regime that made his first-term trade skirmishes look like diplomatic foreplay. Sweeping levies on European automobiles, targeted duties on French luxury goods, and punitive measures against German industrial exports were announced with the theatrical flourish that has become this presidency’s signature.

The immediate market reaction was telling. The dollar spiked briefly on what traders interpreted as a “strong America” signal. But within weeks, something more sinister began to unfold. Foreign central banks, particularly in the EU and Asia, started quietly diversifying their reserve holdings. The Bank for International Settlements’ quarterly data—often overlooked in the daily noise—showed a measurable uptick in euro and yen allocations at the expense of Treasury securities.

Why? Because “Liberation Day” wasn’t liberation at all. It was an admission that the United States was willing to weaponize the global trading system for domestic political theater, even at the cost of undermining the very stability that makes dollar hegemony possible. When you’re the reserve currency, reliability is everything. Erratic trade policy—particularly against your closest military and economic allies—is a credibility tax that compounds with each presidential decree.

By the time summer 2025 arrived, the structural damage was clear. The dollar’s traditional safe-haven premium during risk-off episodes had noticeably diminished. During the August sovereign debt scare in Italy, capital fled not predominantly to Treasuries but to Swiss bonds and German Bunds. The “exorbitant privilege,” as Valéry Giscard d’Estaing once called it, was beginning to look more like an ordinary privilege—and a declining one at that.

The OBBBA Effect: Stimulus or Poison?

If Liberation Day was the wound, the “One Big Beautiful Bill Act” (OBBBA)—passed with little Republican dissent in late 2025—was the infection that followed.

Marketed as a comprehensive tax reform and infrastructure package, OBBBA was in reality a $2.3 trillion stimulus injection into an economy already running uncomfortably hot. Corporate tax cuts, expanded child credits, and a byzantine web of industrial subsidies were bundled together in legislation that even sympathetic analysts at Morgan Stanley described as “fiscal policy without a theory of change.”

The timing couldn’t have been worse. Core inflation, which had tantalizingly approached the Fed’s 2% target in early 2025, began creeping upward again by year-end. Producer price indices showed persistent cost pressures. And crucially, the bond market—that merciless arbiter of fiscal credibility—began to revolt.

Ten-year Treasury yields, which had stabilized around 4.2% through much of 2025, surged past 4.8% by December. This wasn’t a growth story; it was a risk premium story. International buyers, already spooked by Liberation Day’s institutional uncertainty, started demanding higher compensation for holding dollar-denominated debt. The “twin deficit” anxiety—whereby America’s budget deficit and current account deficit both exceed 5% of GDP—became impossible to ignore.

J.P. Morgan’s Global FX Strategy desk published a damning note in December 2025 titled “The Dollar’s Structural Headwinds,” arguing that OBBBA had effectively frontloaded consumption while backloading fiscal consolidation—a recipe for long-term currency depreciation. When one of Wall Street’s most establishment-friendly banks starts using the word “structural” to describe dollar weakness, you know something fundamental has shifted.

When the Fed Became a Political Piñata

But perhaps nothing has damaged dollar credibility more than the extraordinary public warfare between the White House and the Federal Reserve.

Fed Chair Jerome Powell, reappointed by President Trump in his first term, has found himself in an impossible position. Faced with OBBBA-induced inflationary pressures, the Fed signaled in late 2025 that rate cuts—which markets had priced in aggressively—might need to be postponed or reversed. Powell’s December press conference, where he diplomatically suggested that “fiscal policy coordination would be helpful,” was interpreted by the administration as an act of institutional disloyalty.

What followed was unprecedented. The President, in a series of Truth Social posts throughout January 2026, accused Powell of “sabotaging American workers” and suggested that the Justice Department should “look into” whether the Fed Chair’s actions constituted a prosecutable offense. While legal experts universally dismissed the threat as constitutionally nonsensical, the damage to institutional credibility was immediate and measurable.

Central bank independence isn’t just a good governance principle—it’s a core pillar of reserve currency status. When the executive branch of the world’s largest economy begins threatening criminal prosecution of its central bank leadership for making data-driven policy decisions, international investors take notice. And they act.

The Swiss National Bank’s January 2026 policy statement contained a subtle but telling reference to “maintaining flexibility in reserve composition given evolving global monetary governance standards.” Translation: even the notoriously cautious Swiss are hedging against dollar instability driven by political interference.

The Greenland Gambit and European Estrangement

As if tariffs, fiscal excess, and Fed-bashing weren’t enough, January 2026 brought the “Greenland Gambit”—a renewed presidential fixation on purchasing Denmark’s autonomous territory, complete with thinly veiled threats about NATO commitment if Denmark refused to negotiate.

The geopolitical implications are beyond this article’s scope, but the currency market implications are not. European capitals, already frustrated by Liberation Day tariffs and watching the Fed’s independence erode, began openly discussing “strategic autonomy” in financial matters. French Finance Minister Bruno Le Maire—normally diplomatic to a fault—suggested in a Le Monde interview that Europe should “prepare for a world where dollar stability can no longer be assumed.”

This isn’t just talk. The European Central Bank’s January meeting included discussion of accelerating the “international role of the euro” initiative, which had been languishing since its 2018 launch. Germany’s Bundesbank published research suggesting that euro-denominated trade invoicing could realistically reach 35% of global transactions by 2030 if current U.S. policy trajectories continue.

The dollar’s dominance has always rested on a tripod: deep capital markets, rule of law, and military-backed geopolitical stability. Trump 2.0 policies are systematically undermining each leg. When your closest allies begin treating your currency as an unreliable utility rather than a strategic asset, the network effects that sustain reserve currency status begin to unravel.

Gold’s Testimony: The Market’s Verdict

Let’s talk about gold’s extraordinary rally—because it’s telling a story that Treasury officials desperately wish to ignore.

At $4,600+ per ounce, gold has appreciated roughly 60% from its 2023 lows. This isn’t just inflation hedging or jewelry demand from Asia. This is a profound vote of no confidence in fiat monetary management, particularly dollar-based monetary management.

Central banks—especially in emerging markets and non-Western economies—have become voracious gold buyers. China’s official reserves show consistent monthly accumulation. Poland, Singapore, and India have all substantially increased their bullion holdings. Even historically dollar-centric Gulf states are diversifying into physical gold at rates not seen since the 1970s.

Why gold, and why now? Because gold is the ultimate non-political asset. It can’t be sanctioned, it doesn’t require institutional trust, and it doesn’t care about presidential Twitter feeds. In an environment where the U.S. is simultaneously running massive deficits, threatening its central bank’s independence, alienating allies, and pursuing mercantilist trade policies, gold offers what the dollar increasingly cannot: predictable neutrality.

The De-Dollarization Undercurrent: Trend or Tsunami?

The academic debate about “de-dollarization” has long been contentious. Skeptics correctly note that despite decades of predictions, the dollar still comprises roughly 58% of global foreign exchange reserves and dominates international trade invoicing.

But 2025-2026 may represent an inflection point—not a sudden collapse, but an acceleration of a slow-burning trend. The BRICS nations have expanded their local currency swap arrangements. The Bank for International Settlements’ “Project mBridge,” which facilitates central bank digital currency settlements bypassing SWIFT and dollar intermediation, moved from pilot to operational phase in late 2025.

More tellingly, even traditional American allies are building redundancy. The EU’s INSTEX mechanism—originally designed to circumvent Iranian sanctions—has been quietly expanded into a more general euro-based settlement platform. Japan and South Korea have doubled their bilateral currency swap line, reducing reliance on dollar liquidity.

These are not acts of hostility. They’re acts of prudent risk management by nations watching American institutional stability erode in real time. When the world’s reserve currency issuer behaves unpredictably, the world builds alternatives. Not overnight, but inexorably.

What Comes Next: Three Scenarios

As we move through 2026, three broad scenarios emerge for the dollar:

The Stabilization Scenario: The administration moderates its rhetoric, OBBBA’s inflationary impulse fades, and the Fed regains operational autonomy. The dollar stabilizes in the 98-102 DXY range, and reserve currency status persists, albeit with a slightly diminished market share. Probability: 30%.

The Structural Decline Scenario: Current policy trajectories continue. Europe and Asia accelerate alternative payment systems and reserve diversification. The dollar loses 5-8% of its reserve currency share over the next three years, triggering higher structural yields on U.S. debt and a permanent risk premium. Probability: 50%.

The Crisis Scenario: A unexpected shock—a major U.S. bank failure, a government shutdown during debt ceiling negotiations, or an actual Fed Chair indictment attempt—triggers a sharp, disorderly dollar sell-off. Capital controls become politically discussable. Probability: 20%.

The Icarus Paradox

The dollar’s current predicament echoes the Greek myth of Icarus—flying too close to the sun on wings of wax. American policymakers, intoxicated by decades of “exorbitant privilege,” have forgotten that reserve currency status is earned, not inherited. It requires institutional credibility, policy predictability, and a commitment to the boring but essential work of maintaining trust.

Liberation Day, OBBBA, the Fed attacks, the Greenland threats—these aren’t isolated missteps. They’re symptoms of a broader abandonment of the principles that made dollar hegemony possible in the first place.

The market’s verdict is already in. Gold at record highs, euro outperformance, emerging market central bank diversification—these are not temporary technical factors. They’re structural repositioning for a world where American exceptionalism in currency markets can no longer be assumed.

The dollar won’t collapse tomorrow. Reserve currency transitions take decades, not months. But history suggests they’re also non-linear—periods of apparent stability punctuated by sudden, irreversible shifts. We may be living through one of those shifts right now, watching the wax begin to melt in real time.

Facing US tariffs, tech disruption & shifting alliances, APAC CEOs’ 2026 mandate is resilient adaptation. Discover the data-driven Triple-A framework for strategic coherence and decisive action.
The call from the logistics center arrived at 3 a.m. Singapore time. A container ship, mid-voyage from Ho Chi Minh City to Long Beach, now faced a labyrinth of newly announced US tariffs. For the CEO on the line, the decision wasn’t just about rerouting cargo; it was a stark preview of the next three years. This is the new dawn for Asia-Pacific leaders: an era where volatility is not an interruption but the operating environment itself.

The old playbooks—optimized for a generation of stable globalization—are obsolete. The mantra for 2026 and beyond crystallizes into a relentless cycle: Assess the shifting landscape with brutal clarity, Adapt your organization with strategic coherence, and Act with a decisiveness that embeds change into your company’s DNA. This isn’t about survival; it’s about forging a decisive competitive advantage from the very forces seeking to disrupt you.

Assess: Mapping the Unstable Geometry of Trade, Tech, and Alliances

The first discipline of the modern APAC CEO is geopolitical and technological triage. The landscape is no longer simply changing; it is fragmenting, creating competing spheres of influence and risk.

The New US Tariff Reality: A Fork in the Road, Not a Speed Bump
Recent policy shifts, including the extension and expansion of Section 301 tariffs, represent a structural reset, not a cyclical adjustment. As noted by the Peterson Institute for International Economics, these measures are compelling a fundamental “supply chain redesign” that goes far beyond finding alternative suppliers. The goal is no longer just cost efficiency, but strategic resilience—building networks that can absorb political, not just logistical, shocks. For CEOs, this means mapping every critical component against a matrix of geopolitical risk and tariff exposure. The question has shifted from “Where is it cheapest?” to “Where is it safest, and what is the true cost of that safety?”

Beyond “Friend-Shoring”: The Nuanced Alliance Calculus
The conversation has moved past simple binaries. It’s not just about aligning with Washington or Beijing. A 2024 report from the Economist Intelligence Unit highlights the rise of “multi-alignment,” where nations like Vietnam, India, and members of ASEAN deftly engage with all powers to maximize sovereignty and economic benefit. For a CEO, this means your partnership in Indonesia might be viewed differently in Brussels than your joint venture in South Korea. Understanding this nuanced map—where alliances are situational and technology standards are battlegrounds—is paramount. Your geopolitical risk management must now be as sophisticated as your financial risk modeling.

Adapt: Building the Organization That Changes Without Unraveling

Once assessed, volatility must be met with adaptation. But here lies the critical flaw in many responses: chaotic, reactive pivots that drain morale and blur strategic focus. True resilience, as outlined by thought leaders at Harvard Business Review, is the ability to “change repeatedly without losing strategic coherence.”

The Resilience Dividend: Shared Purpose as Your Anchor
In this environment, a well-articulated, deeply held corporate purpose is your most valuable asset. It is the keel of your ship. When a new tariff forces a business model adjustment, or a breakthrough in AI demands a service overhaul, teams aligned on why the company exists can navigate how it changes with remarkable agility. This shared purpose transcends quarterly targets; it provides the cultural permission to abandon legacy practices and the gravitational pull to keep new initiatives aligned to a core mission. The resilient organization isn’t a fortress—it’s a purposeful organism.

Act: The Decisive Engine of Learning, Skilling, and Governance

Assessment without action is paralysis. Adaptation without execution is fantasy. The final pillar of the 2026 mandate is building an engine for decisive, embedded change.

From Reskilling to “Upskilling Ecosystems”
Investing in workforce reskilling is table stakes. The leading CEOs are building dynamic upskilling ecosystems. This involves partnering with governments (leveraging Singapore’s SkillsFuture initiative, for example) and edtech platforms to create continuous, just-in-time learning pathways. As McKinsey & Company research stresses, building human capital immunity—the capacity to rapidly redeploy talent to new priorities—may be the ultimate competitive moat. This goes beyond workshops; it requires rethinking career lattices, reward systems, and how you identify potential.

Governance as the Shock Absorber: Embedding New Workflows
Decisive action fails if new strategies die in the echo chamber of the C-suite. Establishing agile, empowered governance structures is the mechanism that translates strategy into operations. This means creating cross-functional “nerve centers” for critical issues like supply chain redundancy, with the authority to cut through bureaucracy. It requires upgrading capabilities not as IT projects, but as core business processes. The test is simple: is the new supply chain redesign workflow fully embedded in your procurement team’s daily rituals? Is the data from your new risk dashboard actively steering monthly investment reviews? If not, the action hasn’t been completed.

The 2026 Vantage Point

For the APAC CEO, the path ahead is not one of bracing for impact, but of steering into the storm with a new navigational system. The Triple-A Framework—Assess, Adapt, Act—is not a sequential checklist but a continuous, reinforcing loop. You assess to inform adaptation, you adapt to enable decisive action, and the outcomes of your actions become the data for your next assessment.

The CEOs who will dominate the latter half of this decade are those who stop asking, “When will things return to normal?” They understand that this is normal. Their mandate is to build organizations that are not just robust, but antifragile—thriving on volatility because their strategic coherence, empowered people, and adaptive engines turn disruption into distance from their competitors. The 3 a.m. call will come. The question for 2026 is: What system have you built to answer it?

On a crisp January morning in Davos, as global elites gathered for their annual ritual of discussing “collaboration” and “shared prosperity,” Canadian Prime Minister Mark Carney delivered a speech that felt less like diplomacy and more like a eulogy. “We are in the midst of a rupture, not a transition,” he declared, warning that great powers now wield economic integration as weapons and tariffs as leverage. What made Carney’s address so striking wasn’t merely its candor about the death of the rules-based international order—it was the unspoken target of his critique. Though he never mentioned Donald Trump by name, everyone understood: the gravedigger of the post-1945 system isn’t primarily Beijing or Moscow. It’s Washington.

The irony is as sharp as it is unsettling. For eight decades, the United States positioned itself as the architect and guarantor of a liberal international order predicated on sovereignty, multilateral cooperation, and the peaceful resolution of disputes. Today, under Trump’s second administration, America is accelerating that order’s collapse with a ferocity that makes Russia’s revisionism look almost modest by comparison. The evidence is mounting: Trump Greenland national security threats that echo Putin’s Ukraine rationale, withdrawal from 66 international organizations, and an explicit rejection of international law itself. The world’s erstwhile hegemon isn’t pivoting—it’s demolishing its own creation.

Trump Greenland National Security: A Familiar Playbook

In late January 2026, President Trump declared that acquiring Greenland was “imperative for national and world security,” repeatedly refusing to rule out military force to seize the Danish autonomous territory. The White House press secretary confirmed that “utilizing the U.S. Military is always an option” in pursuing what Trump frames as a vital strategic objective. His justification? Greenland’s Arctic position makes it essential to defend against Russian and Chinese encroachment. Never mind that the United States already maintains a significant military presence at Pituffik Space Base under a 1951 agreement with Denmark, or that Denmark is a NATO ally bound by mutual defense commitments. Trump’s push for Greenland represents a territorial ambition dressed in the language of security—a rationale that should sound disturbingly familiar.

When Vladimir Putin ordered Russian forces into Ukraine in February 2022, he invoked strikingly similar logic. He framed the invasion as a preventive war necessitated by NATO expansion and Ukraine’s growing military cooperation with the West, which he characterized as an existential threat to Russian security. Putin claimed he was conducting a “special military operation to protect the people in the Donbas,” portraying Russia’s aggression as defensive action against Western provocations. The parallels to Trump’s Greenland rhetoric are unmistakable: both leaders invoke national security imperatives to justify territorial expansion, both dismiss the sovereignty of smaller nations as subordinate to great-power interests, and both signal willingness to use military force if diplomacy fails to deliver the desired result.

The structural similarity goes deeper than rhetoric. As scholars analyzing Putin’s preventive war logic have noted, Moscow genuinely feared that Ukraine’s westward drift would shift the balance of power irreversibly against Russia. Trump’s national security advisor reportedly framed Greenland in precisely these terms: critical minerals vital for emerging technologies and national security applications, combined with strategic positioning against peer competitors. Both cases reveal how great powers invoke security to legitimize what earlier eras would have simply called conquest. The Trump administration’s approach differs from Putin’s primarily in degree and presentation—Trump at Davos eventually backed away from tariff threats and pledged not to use force, though his broader posture suggests these were tactical retreats rather than strategic shifts.

Post-American Era: Economic Weaponization and the New Reality

Mark Carney’s Davos speech articulated what allies have whispered privately for years: the post-American era has arrived, and it arrived with American complicity. Drawing on Václav Havel’s essay on life under Soviet totalitarianism, Carney argued that middle powers had long placed metaphorical signs in their windows—participating in the rituals of the rules-based order while politely ignoring the gap between American rhetoric and reality. That bargain no longer works because great powers have begun using economic integration as weapons, tariffs as leverage, financial infrastructure as coercion, and supply chains as vulnerabilities to be exploited.

The economic weaponization Carney describes isn’t hypothetical. Trump has threatened 25% tariffs on European goods unless Denmark cedes Greenland, withdrawn from dozens of international organizations, and explicitly stated in a New York Times interview: “I don’t need international law.” These actions represent a systematic dismantling of the institutional architecture that Washington itself constructed after 1945. When the United States freezes all foreign assistance, blocks judges at the International Criminal Court with sanctions, and contemplates military seizure of allied territory, it’s not reforming the liberal international order—it’s demolishing it.

What distinguishes American norm erosion from Chinese or Russian revisionism is its devastating effect on the order’s legitimacy. Beijing and Moscow have long been external challengers, states that never fully bought into liberal principles and therefore were always viewed with suspicion by the system’s defenders. But when the United States—the order’s founding architect, military guarantor, and self-proclaimed exemplar—abandons multilateralism for transactionalism and sovereignty for spheres of influence, it removes the keystone from the entire edifice. As observers at Chatham House note, Trump’s assertion that he personally determines when the United States should comply with rules that bind others represents a fundamental repudiation of the reciprocity on which international law depends.

Trump Greenland Putin Ukraine Parallels: Great Powers Unchained

The parallels between Trump’s Greenland ambitions and Putin’s Ukraine invasion illuminate a broader pattern: the return of great-power politics unmoored from international legal constraints. Both leaders frame territorial expansion as defensive necessity, both invoke the language of security to mask strategic opportunism, and both signal contempt for the sovereignty of smaller neighbors. Yet the comparison also reveals asymmetries that make the American case more corrosive to global order.

Putin’s Russia, while destabilizing and aggressive, operates largely as expected from a revanchist power still nursing post-Cold War grievances. Moscow’s invasion of Ukraine, though catastrophic, surprised few serious analysts of Russian strategic culture. The Kremlin has consistently prioritized spheres of influence over sovereign equality, and its use of force, while illegal and brutal, aligns with historical patterns of Russian imperial behavior. International reaction to the Ukraine invasion—sanctions, isolation, unified NATO response—demonstrated that the international community still recognizes and punishes brazen violations of territorial integrity, even when committed by a nuclear-armed permanent Security Council member.

Trump’s America, by contrast, represents something more dangerous: the defection of the system’s hegemon. When the United States threatens military action against Greenland while simultaneously positioning itself as a defender of peace, when it withdraws from multilateral frameworks while demanding allies shoulder greater security burdens, it doesn’t just violate norms—it delegitimizes them. The hypocrisy is the point. By demonstrating that rules apply selectively based on power rather than principle, Washington validates every revisionist power’s cynicism about the liberal international order. Why should China respect freedom of navigation in the South China Sea when America threatens to seize Arctic territory from a NATO ally? Why should Russia accept Ukraine’s sovereignty when the United States disregards Greenland’s self-determination?

Three critical distinctions separate Trump’s approach from Putin’s and make it more systemically corrosive:

Institutional destruction vs. institutional evasion. Russia works around or against international institutions; America is actively dismantling them from within. Moscow violated the UN Charter by invading Ukraine, but it didn’t withdraw from the United Nations or sanction the International Court of Justice. Trump has done both equivalents, leaving a trail of abandoned treaties and defunded organizations.

Alliance betrayal vs. alliance expansion. Putin’s aggression strengthened NATO cohesion and prompted Finland and Sweden to join the alliance. Trump’s threats against Greenland have fractured transatlantic unity and raised existential questions about Article 5 guarantees. When a Democratic Senator observes that NATO countries might need to defend Greenland “against the U.S. if necessary,” the alliance’s foundational logic has collapsed.

Normative leadership vs. normative destruction. Russia never claimed to champion a rules-based order; its revisionism involves no ideological betrayal. America’s abandonment of principles it once preached—sovereignty, peaceful resolution of disputes, multilateral cooperation—represents a betrayal that undermines those principles’ global legitimacy. As analysis from the Carnegie Endowment notes, Trump’s policies signal a shift from American leadership of a liberal order to America operating as just one great power in a post-Western world.

US Undermining World Order: The Venezuela Test Case

If Trump’s Greenland threats represented rhetorical escalation, the January 2026 military operation in Venezuela provided brutal proof of concept. U.S. forces abducted Venezuelan President Nicolás Maduro and his wife in a large-scale raid on Caracas, with Trump declaring the United States would “run” Venezuela and was “not afraid of boots on the ground.” The operation violated every principle of sovereignty, non-intervention, and peaceful dispute resolution enshrined in the UN Charter—principles the United States spent decades promoting as universal norms.

The Venezuela intervention accelerated Trump’s Greenland campaign precisely because it demonstrated that consequences for American lawlessness remain minimal. International condemnation came, predictably, from South America and the Global South. But the muted response from European allies—whose own security depends on American credibility—revealed how thoroughly Trump has inverted the traditional logic of alliances. Rather than America’s allies constraining its behavior through institutional commitments and shared values, Trump has weaponized alliance dependence to extract concessions and silence criticism. When Denmark responded to Greenland threats by deploying elite troops to the territory, Trump threatened tariffs. When those tariffs materialized, European unity fractured.

This is economic coercion masquerading as alliance management, and it represents a profound departure from postwar American statecraft. Previous administrations occasionally pressured allies on defense spending or trade disputes, but they operated within an accepted framework of reciprocal obligations and institutional constraints. Trump has discarded that framework entirely, replacing it with a transactional model where America’s overwhelming power—military, economic, financial—becomes a cudgel for extracting unilateral advantage. The rules-based order assumed that power would be self-limiting, channeled through institutions and constrained by enlightened self-interest. Trump’s foreign policy demonstrates that assumption was always fragile.

Decline of Liberal International Order: Middle Powers and Adaptation

Carney’s speech represented more than elegant critique—it outlined a survival strategy for what he termed “middle powers” navigating the wreckage of American-led order. His prescription: stop invoking the “rules-based international order” as though it still functions as advertised, acknowledge that great powers now pursue unhindered power and interests, and build coalitions among less powerful states to create “a third path with impact.”

This vision of middle-power resilience through collective action offers both hope and warning. Hope, because it suggests the complete collapse into great-power spheres of influence isn’t inevitable—that states between the giants retain agency if they coordinate effectively. Warning, because it implicitly concedes that the universal rules-based order is dead, replaced by a more fragmented, regionalized system where justice and security depend on coalition strength rather than law.

Canada’s response under Carney illustrates this adaptation in practice. Within months of taking office, he signed trade and security agreements across four continents, doubled defense spending, and positioned Canada as a champion of the multilateral system that Washington is abandoning. Other middle powers are following similar playbooks. European nations are accelerating integration and boosting military capacity, recognizing they can no longer outsource security to an increasingly unreliable America. ASEAN states are diversifying partnerships, hedging between Washington and Beijing rather than betting exclusively on either. Even traditional American allies like South Korea and Japan are exploring greater strategic autonomy.

Yet this proliferation of hedging strategies and defensive regionalisms carries its own risks. A world organized around competing regional blocs and ad hoc coalitions may prove more stable than unconstrained great-power rivalry, but it represents a significant step backward from the aspirations of 1945. The postwar order, for all its flaws and hypocrisies, at least established the principle that international law should constrain power—that might shouldn’t automatically make right. When middle powers abandon appeals to universal norms in favor of balance-of-power politics, they validate the very great-power cynicism that necessitated their adaptation.

Rules-Based Order Collapse: The Path Forward

The uncomfortable truth that Carney articulated and Trump embodies is that nostalgia offers no strategy. The liberal international order that emerged from World War II—multilateral institutions, free trade, collective security, democratic solidarity—was always more aspiration than reality, particularly for those outside the Western security community. Its genuine achievements, from unprecedented economic growth to the avoidance of great-power war, coexisted with profound inequalities, selective application of rules, and a persistent gap between universalist rhetoric and particularist practice.

What made the system workable wasn’t perfection but American willingness to embed its hegemony within institutional constraints that at least gestured toward reciprocity and legitimacy. When Washington championed the WTO even when rulings went against it, when it built coalitions rather than dictating terms, when it defended smaller allies’ sovereignty even at cost to short-term interests, it sustained the fiction that rules could constrain power. Trump has shattered that fiction with remarkable efficiency.

The consequences extend far beyond Greenland or Venezuela. Every authoritarian regime now possesses a ready-made justification for territorial ambitions: “If America can threaten to seize allied territory for national security reasons, why can’t we?” Every middle power calculating its security posture must now account for the possibility that American protection is conditional, transactional, and reversible. Every international institution confronts an existential question: what purpose do rules serve when the most powerful player explicitly rejects their authority?

Three scenarios appear plausible for the international system’s evolution:

Fragmented regionalism: The current trajectory, where overlapping regional orders—European integration, Asian hedging, Western Hemisphere proximity to American power—replace the aspiration of universal rules. This is Carney’s “third path,” potentially more stable than pure great-power rivalry but far less protective of smaller states’ sovereignty and far less conducive to addressing global challenges like climate change or pandemic response.

Spheres of influence: Trump’s apparent preference, where great powers divide the world into exclusive zones and police their peripheries without interference. This arrangement might reduce great-power conflict through mutual recognition, but it would formalize the subordination of smaller states and legitimize territorial expansion for security reasons—essentially returning to 19th-century concert politics with 21st-century technology.

System collapse into conflict: The nightmare scenario, where the erosion of institutional restraints and proliferation of territorial grievances creates cascading crises that overwhelm great powers’ capacity for management. This is the path that led from the Congress of Vienna’s breakdown to World War I, and while nuclear weapons change the calculus, they don’t eliminate the risk of miscalculation and escalation.

None of these futures resembles the liberal international order’s promise. None offers the combination of sovereignty protection, economic openness, and collective security that defined postwar aspirations. And crucially, the United States isn’t drifting into these scenarios through inattention or incompetence—it’s actively accelerating toward them through deliberate policy choices that prioritize short-term advantage over long-term stability.

The Greengrocer’s Sign: Legitimacy and the Future

Carney’s invocation of Havel’s greengrocer serves as this moment’s most potent metaphor. For decades, allies participated in rituals celebrating the rules-based order even as they privately recognized its imperfections and hypocrisies. They placed the sign in the window—”Workers of the world, unite” or “Sovereignty matters” or “International law binds us all”—not out of conviction but to avoid trouble, signal compliance, and preserve the system’s veneer of legitimacy.

Trump has removed America’s sign. By explicitly stating “I don’t need international law,” by threatening force against allies, by withdrawing from institutions and agreements, he’s acknowledged what cynics always suspected: that American support for the liberal order was conditional on American advantage, and when that calculus shifted, the principles would be abandoned.

The question now is whether other powers will follow America’s example and remove their own signs, embracing naked interest and power politics, or whether they’ll attempt to sustain some version of rules-based order without American leadership. Early evidence suggests a mixture: some states, particularly in the Global South, are invoking international law more vigorously now that Washington has abandoned it, seeing an opportunity to constrain great powers through collective legal action. Others are pursuing the hedging strategies Carney advocates, building resilience through diversification rather than relying on rules.

What seems increasingly unlikely is a return to the comfortable fiction of the past seven decades—that a benign American hegemon would voluntarily constrain its power through institutional commitments and provide global public goods while asking relatively little in return. That fiction required American buy-in, and Trump has made clear that at least one major faction of American politics views it as a sucker’s bargain. Even if a future administration attempts to restore elements of liberal internationalism, allies will remember 2025-2026 and hedge accordingly.

The great tragedy of Trump’s Greenland obsession and broader assault on international order isn’t that it reveals American hypocrisy—serious observers always knew the gap between principle and practice. The tragedy is that it destroys whatever practical value that hypocrisy once served. When America claimed to support sovereignty while occasionally violating it, at least smaller states could appeal to those stated principles as leverage. When America framed alliances as partnerships rather than protection rackets, at least allies could assume some baseline of reliable commitments. Trump has stripped away the hypocrisy and left only the power politics beneath.

In doing so, he hasn’t made America weaker—the United States remains overwhelmingly powerful militarily and economically. But he has made the world more dangerous, more fragmented, and less capable of addressing collective challenges. And he has ensured that when historians write the story of the liberal international order’s collapse, they will identify not Beijing or Moscow as the primary accelerant, but Washington. The United States, having led the West in building an international order after 1945, now leads it in tearing that order down.

Carney’s warning deserves the final word: “The old order is not coming back. We should not mourn it. Nostalgia is not a strategy. But from the fracture, we can build something better, stronger and more just.” Whether middle powers can actually construct that better order while great powers pursue unhindered ambitions remains the decade’s defining question. But one thing is certain: they’ll be building it without the United States—or more precisely, despite the United States.