Diversification and dedollarization in the world economy
In response to recent events, various alliances and investments that bypass the US have been floated, including a proposal to green the world’s largest trade bloc, the Regional Comprehensive Economic Partnership, and the first economic dialogue in five years between key members China, Japan, and South Korea. The EU wants to strengthen and green its trade agreements with Mexico, Canada, and Brazil, and is reaching out to the UAE on a new free trade agreement. An alliance between ASEAN countries and the Gulf Cooperation Council will be discussed by heads of state of Singapore, Saudi Arabia, and Indonesia. In international relations, trade, security and capital markets, the themes are the same: in place of decades of reliance on the US and its assets, the rest of the world is now seeking to diversify, decarbonize, defend, and dedollarize. It’s far from clear how a unipolar US-led global order could possibly be repaired. Reforms to institutions like the World Bank and IMF have foundered on Congressional approval, but even with US cooperation any such change to the formal architecture would require new levels of trust and commitment between Europe and China in particular, and with other powerful countries and blocs including Japan, Brazil, and the GCC countries. Brazil and South Africa are leading diplomatic efforts through their 2025 presidencies of BRICS, COP30, and the G20. Discussion of a new trading and financial architecture, capable of providing policy space to pursue green structural transformation is now accelerating. Developing countries are not passive in the polycrisis but are actively trying to wrestle control over their destinies. With Trump blowing up the world order, there is suddenly more space for such countries to work with China, Europe and East Asia. Things have changed permanently—even if all the Trump tariffs are rolled back tomorrow, and even if the Republicans enter the political wilderness in 2028.
28 April 2025
