The global economy is being rattled by overlapping shocks—military tension in the Middle East, deteriorating fiscal discipline in the United States, the breakdown of multilateral trade norms, and a growing climate crisis. While each of these threats is concerning on its own, taken together they mark a turning point for the rules-based global system that has underpinned prosperity for much of the post-war period.
At the center of these disruptions is the United States. Under President Donald Trump, the US has embraced unilateralism over cooperation, imposing tariffs that breach World Trade Organization (WTO) norms and pushing a deficit-heavy spending agenda that risks destabilizing dollar-denominated assets. More worryingly, Trump’s America has now withdrawn—again—from the Paris climate agreement, raising questions about the future of global climate governance.
For Asian and European economies—two regions that have long depended on open trade, financial stability, and climate coordination—the implications are profound. This moment demands not just adaptation but active leadership to re-anchor global norms in a multipolar world.
Trump’s re-election campaign has doubled down on “reciprocal tariffs,” an approach that deliberately sidesteps WTO protocols. These tariffs violate the most-favoured-nation (MFN) rule, which requires equal treatment for all WTO members unless exceptions are made through formal trade agreements. Trump has also defied commitments to keep US tariffs within WTO-bound ceilings—further eroding the credibility of international trade rules.
Alongside this, his fiscal policy introduces a new layer of systemic risk. The proposed “big, beautiful” spending bill—praised by Trump but derided by economists—would add US$2.4 trillion to an already ballooning national debt. The Congressional Budget Office estimates that with further debt ceiling increases, US federal debt could reach 134% of GDP before the end of Trump’s second term.
This matters because much of global finance depends on trust in US Treasury securities as a safe, liquid store of value. If investors begin to lose confidence in the dollar’s long-term stability, global risk premia could rise, raising the cost of borrowing across emerging and advanced economies alike. As Hemingway quipped about bankruptcy, these things happen “gradually, then suddenly.” We may now be approaching the latter phase.
The damage is not theoretical. Many Asian central banks hold significant portions of their foreign-exchange reserves in dollar assets, and nearly all trade invoicing in the region uses the greenback. Europe, while less dollar-reliant in daily trade, is deeply entangled in global capital markets that react sharply to shifts in US interest rates and debt dynamics.
Moreover, both Asia and Europe have staked their growth models on global trade openness. Any move toward sustained tariff escalation threatens their export sectors and supply chain integration. Simultaneously, Europe’s climate goals—and its Carbon Border Adjustment Mechanism (CBAM)—rely on collective global action. The US walking away from the Paris agreement for a second time reduces pressure on other countries to comply, endangering the transition to clean energy.
In effect, America’s policy trajectory now undermines the pillars of modern globalization: stable trade rules, a trusted financial anchor, and shared commitments to sustainability. Asia and Europe cannot passively accept this shift. They must act jointly to preserve what still works—and to reinvent what no longer does.
The best response to America’s strategic unreliability is coordinated resilience. On trade, Europe and Asia can deepen ties by linking the European Union to Asia’s two major multilateral pacts: the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). A common rulebook that spans these blocs would effectively govern the majority of world trade, creating a robust system irrespective of US participation.
That rulebook should preserve essential WTO norms like MFN and bound tariffs, while updating weak areas—especially in subsidy discipline and state-owned enterprise behavior. Restoring WTO functionality will also require reviving the Appellate Body, potentially by expanding the pool of judges and insulating it from political interference.
On climate, the EU’s CBAM can be paired with similar mechanisms in Japan, Korea, or ASEAN to ensure that carbon-intensive imports face consistent penalties. This creates market incentives for decarbonization and protects domestic industries from environmental dumping. Financially, a shift is already underway. Asian central banks and the European Central Bank are exploring cross-border digital payment infrastructure and currency-swap lines that reduce reliance on the dollar. A jointly backed stablecoin pegged to a basket of Asian and European currencies could further diversify global liquidity.
Finally, on debt and development finance, institutions like the Asian Infrastructure Investment Bank (AIIB) and the European Investment Bank (EIB) can work together with the Paris Club to offer more robust debt relief mechanisms for vulnerable economies—independent of US political cycles.
The world’s economic balance is changing not through conflict, but through neglect. As the United States turns inward—unraveling the very systems it once built—Asia and Europe face a stark choice: step up or watch the order dissolve. Collaboration across these two regions is no longer just a defensive measure; it’s the only credible path forward for open trade, climate action, and financial stability.
This isn’t about punishing the US or replacing the dollar. It’s about insulating global systems from the volatility of domestic politics in any single country. With the right mechanisms—updated trade alliances, joint climate enforcement, diversified financial instruments—Asia and Europe can cushion global markets against political whiplash. A world economy driven by multi-polar cooperation may not be as sleek as the American-led system once was, but it would be more resilient.
What’s needed now is political will. European and Asian policymakers must compartmentalize their differences—whether on human rights, data governance, or subsidies—and align where it matters most: preserving global public goods. This will require investment in institutions, legal harmonization, and perhaps uncomfortable conversations with domestic industries.
But the alternative is worse. If no one picks up the mantle of global stewardship, we’ll be left with fragmented, transactional systems vulnerable to coercion and chaos. Dollar volatility will hit emerging markets. Unregulated carbon dumping will penalize clean industries. And the erosion of trust in rules-based trade will lower growth for all.
In short, the risks of inaction outweigh the cost of collaboration. This moment calls for ambitious regional diplomacy, not incrementalism. A credible alternative to US unpredictability can only come from the combined weight of Asia and Europe—regions that still believe in multilateralism, stability, and a future shaped by rules, not power alone. By anchoring a new phase of economic cooperation around shared responsibility, Asia and Europe have the chance not just to mitigate risk—but to redefine leadership for the next era of globalization. It will be harder. It will be slower. But it may ultimately be fairer—and far more durable.
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