Tilting at Windmills

Global realignment in the age of America First

At the 2026 World Economic Forum in Davos, President Donald Trump delivered one of the most unusual addresses the gathering had seen in decades. In lieu of the customary celebration of global cooperation, his speech doubled down on personal self-aggrandizement alongside nationalist economic and geopolitical themes, challenging allies, calling out green energy specifically, and reigniting recently ignited controversies about territorial prerogatives in Greenland and the broader Western-affiliated world.

Fact-checkers quickly noted that many of Trump’s statements about NATO, historical arrangements, and strategic threats were misleading or inaccurate. But his broader point was unmistakably clear: the United States is asserting its interests unilaterally and expects both rivals and partners to fall in line. This stance is more than rhetorical, actively shaping in real time how other countries view economic and strategic cooperation; the shift is already reflected in early signs and renewed efforts of decoupling across various global investment and policy frameworks.

A New Strain Among Global Relations

Trump’s remarks in Davos quickly took aim at European energy policy, using China-built “windmills” as both a concrete example (however misinformed) and symbol of misplaced priorities and strategic naïveté. In doing so, he challenged not just renewables, but the logic of mutually beneficial interdependence that has underpinned European policy for decades, an approach that drew surprise and irritation among many colleagues.

Germany’s chancellor used his own forum platform to reaffirm Europe’s commitment to sovereignty and cooperation, arguing that Europe must reduce dependencies that make it vulnerable to arbitrary pressures and that NATO remains essential as an alliance of equals, not subjects. He emphasized efforts to strengthen Europe’s defense and economic autonomy, investing in infrastructure, energy diversification, and technology to lessen reliance on capital markets outside Europe.

Canada’s Prime Minister Mark Carney delivered an equally pointed response. Carney framed the current epoch not as a benign transition but a “rupture” in the global order driven by the actions of great powers that increasingly weaponizeeconomic integration, tariffs, supply chains, and financial leverage against all relationships. He called for middle powers to unite in pursuing shared interests and to build frameworks that reduce strategic reliance on any single dominant actor. It was a sharp critique of coercive diplomacy and an explicit invitation to other nations to diversify not just markets but alliances and policy.

Europe’s Strategic Response

Europe’s reaction has not been merely rhetorical. In recent months, EU policymakers have accelerated regulatory and industrial initiatives aimed at strengthening regional autonomy. Germany, for example, has explicitly tied economic competitiveness to strategic sovereignty: increasing defense spending, investing in AI and digital infrastructure, and pushing for energy systems that combine renewables, storage, and modern gas generation to reduce reliance on external suppliers.

Broadly, European leaders have moved to broaden trade relationships in a more deliberate and selective way, a posture reflected in the long and contested process surrounding agreements such as MERCOSUR, the South American trade bloc comprising Brazil, Argentina, Uruguay, and Paraguay. The extended path to ratification has become emblematic of Europe’s evolving trade posture: politically contentious, slower to finalize, and shaped as much by strategic considerations as by near-term economic efficiency. Persistent concerns around environmental standards, regulatory alignment, and asymmetric exposure materially influenced the outcome, underscoring Europe’s reluctance to pursue trade integration at any cost; however, rather than defaulting to scale and speed, Europe has demonstrated a growing willingness to accept friction in exchange for a more resilient balance over the longer term.

At the same time, Europe has moved forward more decisively with other alternatives that reflect a clearer strategic calculus. The recently concluded EU–India trade agreement is a case in point. India offers scale, demographic momentum, and a degree of geopolitical alignment that reduces reliance on traditional transatlantic trade flows. The deal expands access to one of the world’s fastest-growing large economies while reinforcing Europe’s broader effort to diversify supply chains, manufacturing relationships, and end-market exposure.

These trade initiatives sit alongside emerging concepts such as the “EuroStack,” Europe’s parallel effort to reduce dependence on US-controlled technology layers such as cloud infrastructure, AI platforms, semiconductors, and satellite systems. In practical terms, this includes requiring sensitive public-sector data to be stored and processed on European infrastructure, directing government procurement toward European technology providers, funding domestic chip manufacturing, and building EU-controlled satellite communications networks. Together, these initiatives reflect a common logic: integration without optionality creates vulnerability. Whether in technology, energy, or trade, Europe is increasingly favoring redundancy over optimization and balance over concentration. Rather than passively integrating into existing global systems, policymakers are redesigning economic relationships to preserve collective European and individual nation-state autonomy, seemingly even when that comes at the expense of short-term efficiency.

Canada’s Rebalancing Act

“If we’re not at the table, we’re on the menu.” – Mark Carney

For Canada, Carney argued that trade access, supply chains, and regulatory regimes can no longer be treated as neutral; they are now sources of leverage. The policy response has been to reduce single-point dependencies rather than deepen them.

In practice, this has meant accelerating Canada’s trade pivot beyond North America. Carney has emphasized expanding ties with Europe and the Indo-Pacific, a posture now reflected in recently intensified engagement with India, including plans for a high-level visit to New Delhi in March aimed at deepening commercial and strategic ties. The objective is straightforward: diversify export markets, reduce reliance on US demand, and anchor growth to multiple economic centers.

Additionally, Canada’s evolving trade framework with China reflects the same logic of and trend towards recognizing the world’s emerging multi-polarity. Recent agreements have focused narrowly on market access, investment protections, and sector-specific cooperation, while deliberately avoiding deeper structural integration; prudently, engagement has been compartmentalized, preserving regulatory autonomy and limiting exposure to political retaliation, rather than building another asymmetrically exploitable dependence.

Alongside trade diversification, Carney emphasized targeted investment in domestic capacity where exposure is most constraining, such as energy infrastructure, critical minerals, advanced manufacturing, and digital systems. This approach closely parallels Europe’s evolving strategy of reducing vulnerability at key pressure points without retreating from global integration. In both cases, the objective is not autarky, but dexterous optionality. On security, Carney reaffirmed Canada’s commitment to NATO, while drawing a clear distinction between alliance participation and economic dependence, instead advocating for flexible coalitions built around shared standards and specific objectives.

Taken together, these moves reflect a quiet but deliberate rebalancing. While Canada is not disengaging from the United States, it is no longer designing its economic future around a single axis, with a mix of steps both bold and cautious. Policy is increasingly being used to break concentration risk, not reinforce it, and markets are only beginning to price this shift.

Decoupling in Action

These developments are not isolated diplomatic skirmishes. They reflect a deeper strategic decoupling with both economic and capital-market implications. Investors reviewing recent return data cannot ignore that in 2025, non-US developed and emerging markets materially outperformed US equities despite lacking the AI-centric narratives that have driven US mega-cap dominance. For developed markets outside the US, relative returns reached levels not seen in decades.

From a portfolio perspective, this divergence suggests that global growth paths and risk premia are no longer as tightly tethered to US outcomes as they once were. When combined with policy pressures pushing Europe and Canada toward greater economic independence and strategic autonomy, let alone the rest of the world, the case for diversification strengthens. What was once viewed primarily as a risk-management exercise increasingly looks like a crucial response to structural global change.

Will any of this ultimately come to pass in its most dramatic form? Perhaps not. Europe may hesitate. The United States may retreat from the brink, as it often does (e.g., TACO). But that is not the point. The real issue is that a disproportionate amount of capital remains concentrated in assets that are highly exposed to these risks. Even if no decisive break occurs, each renewed episode of belligerence or policy threat introduces incremental doubt, slowly eroding systemic and institutional confidence and increasing the cost of complacency.

At the end of the day, more diversified portfolios tend to be easier to live with, particularly in uncertain environments, while over time they are more likely to deliver durable results. In moments like this, the advantages of diversification are not just theoretical but timely. Moving forward, change was always inevitable; recent US policy choices have simply accelerated its arrival.

What Does This Mean for Investors?

For long-term investors with mandates that span generations, these shifts matter deeply:

• Geopolitical risk is economic risk. Policies that alter strategic relationships, whether through trade actions, alliance tensions, or assertions of territorial prerogatives, change how capital flows, markets price risk, and future growth is distributed.
• Decoupling changes correlations. As countries pursue diversified partnerships, supply chains and investment relationships become regionally anchored. Correlations that held in the post-Cold War era may weaken, while concentrated exposure to a single market or regime becomes increasingly risky.
• Diversification is returning to first principles. What was once an academic ideal (broad global diversification) is increasingly a defense against actual structural and ideological shifts happening in real time.

Investors who confuse the short-term islands of calm as broader structural stability risk being blindsided when such assumptions break, not if but when they do. The global order described by Carney, in which economic interdependence is balanced with strategic autonomy, will not look like the integrated world of the 1990s and 2000s. For institutional portfolios, aligning with that emerging reality means rethinking concentration, rebalancing relevant exposures, and recognizing that diversification is not a concession to uncertainty but a strategic adaptation to an evolving world already irreversibly changing.

Tilting at windmills is, by definition, quixotic. But today, there are many windmills and various weapons drawn for or against each, with some actual giants lurking in their midst capable of immense disruption. Few illusions end without consequence. In a world where ideas and alliances are rapidly realigning, understanding where such perceptions give way to either unnecessary risk or emerging opportunity is what will keep disciplined investors from the flats of their backs as the paradigm shifts.