Executive Summary
As of early 2026, the global order has moved beyond mere transition into definitive rupture. The fiction of a rules-based international order—long sustained by American hegemony—has frayed, replaced by raw, transactional realism. Yet paradoxically, while institutional globalism retreats, economic and network globalization accelerates through adaptation. This bifurcation demands new analytical frameworks.
The contemporary landscape reveals three competing models: Institutional Globalism (in crisis), Network Globalization (resilient and evolving into what scholars now term "reglobalization"), and Transactional Internationalism (ascendant). The G7 must navigate a world where the United States remains a globalist actor but functions as what European commentators call a "pantomime villain" to institutionalists, prioritizing bilateral leverage over collective security frameworks.
Recent empirical evidence confirms this paradox. Despite narratives of deglobalization, global trade flows in 2025 reached record levels, with China's trade surplus exceeding $1 trillion. Supply chain distances hit historic peaks near 5,000 kilometers, refuting claims of wholesale reshoring. Yet this resilience masks profound structural transformation: trade is not contracting but reconfiguring along new geopolitical fault lines, creating what Boston Consulting Group terms a "multi-nodal trade patchwork."
I. Socioeconomic and Politicosecurity Understandings of Globalism
To formulate effective policy under conditions of accelerating geopolitical fragmentation, the G7 must first confront a foundational analytical problem: globalism no longer constitutes a singular, coherent phenomenon. Instead, it has fractured into multiple, competing conceptions that coexist uneasily and frequently operate at cross-purposes. These divergent understandings are not merely semantic. They shape policy design, strategic expectations, alliance behavior, and assessments of systemic risk. Persistent failure to distinguish among them has produced category errors in elite discourse, resulting in misaligned instruments, inflated expectations, and repeated episodes of strategic surprise.
At present, three distinct models of globalism dominate the international arena: Institutional Globalism, Network Globalization, and Transactional Internationalism. Each reflects a different theory of power, legitimacy, and economic integration—and each implies a radically different diagnosis of the current international disorder. Any credible G7 strategy must begin by disentangling these frameworks and recognizing their divergent empirical trajectories.
1. Institutional Globalism (The “Davos” Model)
Institutional globalism conceives the international system as a rules-based order structured around multilateral institutions, shared norms, and formal mechanisms for dispute resolution and collective action. Its architecture encompasses the World Trade Organization (WTO), international climate regimes, global public-health coordination, and legalistic trade and investment arbitration. In this model, power is notionally constrained by rules, and legitimacy derives from compliance with agreed procedures rather than from unilateral coercion.
Current State.
This model is in a state of profound crisis. The post–Cold War legitimacy bargain that sustained institutional globalism—whereby powerful states occasionally exempted themselves from rules while weaker actors accepted asymmetry in exchange for predictability, voice, and long-term inclusion—has eroded decisively. It is now openly contested both by the Global South, which increasingly views multilateral institutions as structurally biased and distributively unjust, and by populist movements within advanced economies, particularly in the United States, which portray these institutions as constraints on sovereignty and domestic economic policy.
The WTO’s 14th Ministerial Conference in Yaoundé convenes amid rising unilateral tariffs, proliferating industrial subsidies, and intensifying geopolitical rivalry. The central issue is no longer incremental reform, but whether global trade governance can adapt to a world of economic security competition—or whether it will fragment into overlapping, power-based regimes governed by selective compliance and informal arrangements.
Empirical Evidence.
Between 2020 and 2025, governments worldwide introduced approximately 18,000 new discriminatory trade measures, marking a decisive shift away from multilateral discipline. Technical regulations now affect nearly two-thirds of global trade, functioning as de facto non-tariff barriers and imposing disproportionate compliance costs on smaller and developing-country exporters. Most strikingly, state intervention in domestic economies was 262 percent higher in 2025 than in 2019, driven by economic security concerns, employment protection, technological competition, and sustainability objectives. These interventions are frequently designed and implemented outside existing multilateral frameworks, further hollowing out institutional authority.
Political Dynamics.
Despite these structural shifts, the language of a “rules-based international order” persists in official discourse, increasingly detached from operational reality. It now functions less as a binding organizing principle than as a legitimizing narrative—invoked selectively and inconsistently. This tension has been acknowledged even by senior architects of the post-crisis global economic order. As Mark Carney, former Governor of both the Bank of England and the Bank of Canada, has observed:
“We knew the story of the international rules-based order was partially false—that the strongest would exempt themselves when convenient. This fiction was useful. So we placed the sign in the window. This bargain no longer works.”
Carney’s admission is analytically significant. It does not deny the existence of international norms; rather, it underscores the collapse of the tacit legitimacy bargain that sustained institutional globalism. Once weaker actors cease to believe that asymmetry will eventually be compensated by inclusion and predictability, the system loses not merely compliance, but consent.
2. Network Globalization (The “Reglobalization” Model)
Network globalization rejects institutional design as the primary driver of global integration and instead treats globalism as an emergent property of interlinked production systems, financial balance sheets, logistics corridors, and digital infrastructures. As emphasized by Hyun Song Shin of the Bank for International Settlements, the world economy increasingly operates as a network of balance sheets, in which shocks propagate through nodes and linkages rather than through treaty-based channels.
Current State.
Empirically, this form of globalization has proven strikingly resilient. Despite escalating tariffs, sanctions, export controls, and diplomatic shocks, global trade and financial flows have not collapsed. Instead, they have reconfigured. Chinese exports rerouted through Vietnam or Mexico, energy flows redirected across continents, and financial intermediation shifting across jurisdictions reflect a process better described as reglobalization rather than deglobalization.
In this model, cost efficiency is no longer the sole optimization criterion. Resilience, redundancy, political alignment, and security of supply have joined efficiency as core determinants of network design. Globalization persists, but with altered topology and higher friction.
Structural Evidence.
The DHL Global Connectedness Tracker (October 2025) confirms this pattern. Global flows of trade, capital, information, and people remain near historic highs. Average trade distances reached approximately 5,000 kilometers, a record level that directly contradicts claims of wholesale reshoring. Supply chains are not shortening; they are stretching geographically to diversify risk.
Equally consequential is the rise of geopolitical “swing states.” Countries outside the core US–China rivalry—including India, Mexico, Vietnam, Brazil, and the United Arab Emirates—expanded their combined share of global trade from 42 percent in 2016 to 47 percent in 2025, emerging as new centers of network centrality and bargaining leverage.
Technology Dimension.
Digital infrastructures have further entrenched interdependence. Artificial intelligence, cloud computing, semiconductor manufacturing, and energy-intensive data centers form tightly coupled systems that no single country—outside the US–China duopoly—can fully reproduce domestically. Paradoxically, the pursuit of “digital sovereignty” has intensified cross-border dependence. As articulated by the World Economic Forum’s Chief of AI Governance:
“AI sovereignty should not mean isolation…we try to move away from the notion that this needs to be full national AI ownership, but more towards strategic interdependence.”
In practice, network globalization has become structurally irreversible in key technological domains, even as states contest its political legitimacy.
3. Transactional Internationalism (The “Trumpist” Model)
Transactional internationalism rejects both institutional constraint and network interdependence as organizing principles. It conceptualizes the international system as a competitive marketplace for dominance, where leverage, coercion, and deal-making displace norms, trust, and long-term reciprocity. Power is exercised through tariffs, sanctions, diplomatic pressure, and symbolic provocation rather than through rule-based coordination.
Current State.
While often framed as rhetorically disruptive, this model has become dominant in practice. It treats allies as negotiable liabilities and adversaries as potential transactional partners, discounting alliance cohesion and institutional credibility in favor of immediate concessions. Long-term trust capital is deliberately subordinated to short-term bargaining advantage.
The Greenland episode of January 2026 illustrates this logic: rhetoric surrounding territorial acquisition functioned less as a literal policy objective than as a signaling device designed to generate leverage across multiple, ostensibly unrelated negotiation domains.
Operational Mechanics.
Tariffs rose sharply in 2025, particularly in manufacturing sectors, with US measures explicitly tied to industrial policy and geopolitical objectives. These actions lifted average global tariffs unevenly, introducing uncertainty rather than predictability. Yet instead of collapsing trade volumes, they induced front-loading behavior, inventory accumulation, and accelerated supply-chain reconfiguration. Global trade experienced an unusually strong start to 2025 driven by anticipatory responses to expected tariff escalation.
Strategic Calculus.
Paradoxically, the external effects of transactional internationalism may be liberalizing for actors outside the United States. As Simon Evenett, Professor of International Trade and Economic Development at the University of St. Gallen, has argued:
“Trump is one factor behind the EU having at least possibly a free trade deal with Mercosur, and the EU and India having a free trade deal. If you think the rest of the world needs to globalize more than the US does because we’re a big economy with a lot of resources, there’s some chance that the net impact of Trump is pro–free trade on a lot of countries other than our own.”
This underscores a central paradox of the current system: transactional internationalism may weaken institutional globalism while simultaneously accelerating network globalization elsewhere—deepening fragmentation rather than reversing interdependence.
II. Regional Ramifications: The Current Landscape."
The fragmentation of globalism outlined in the previous section manifests unevenly across regions, producing distinct patterns of adaptation, resistance, and strategic recalibration. Rather than converging toward a single global order, regional systems are increasingly shaped by local constraints, asymmetric dependencies, and differentiated exposure to great-power competition. The result is not uniform disorder, but structured divergence: regions responding to the same global pressures through markedly different strategic logics. This section examines five critical theaters—Europe, Ukraine, the Asia-Pacific, the Arctic, and the Global South—each of which illustrates how the erosion of institutional globalism, the persistence of network globalization, and the rise of transactional internationalism interact in practice.
Europe: The Paradox of “Strategic Autonomy”
Europe finds itself ensnared in a fundamental contradiction at the heart of its geopolitical condition. For more than two decades, European strategic discourse has been dominated by the aspiration for strategic autonomy—the capacity to act independently in defense, technology, and foreign policy. Yet this ambition collides with an enduring structural reality: continued reliance on the American nuclear umbrella, intelligence architecture, and technological infrastructure, even as Washington increasingly subjects European leaders to forms of transactional pressure experienced in Europe as political humiliation rather than alliance management.
The core tension lies not in Europe’s lack of intent, but in its inability to decouple from US protection while simultaneously resenting the asymmetric terms of that protection. As of 2026, this tension has become more visible rather than less. All 32 NATO members now meet the 2 percent of GDP defense spending benchmark, a dramatic shift from the late 2010s, when only a small minority complied. More significantly, NATO has adopted a new target of 5 percent of GDP by 2035, structured as 3.5 percent for core defense capabilities and 1.5 percent for defense-related expenditures, including infrastructure, cyber resilience, and logistics.
European Union defense investment reflects this momentum. Collective EU defense spending reached approximately €106 billion in 2024 and is projected to rise to €130 billion in 2025. While these figures represent a substantial increase in absolute terms, they remain insufficient to deliver genuine strategic autonomy. Europe’s defense-industrial base remains fragmented, technologically dependent on US systems, and constrained by regulatory and political inertia. Increased spending, in the absence of integration and scale, risks producing redundancy rather than autonomy.
Beyond security, Europe confronts a parallel economic reckoning. Chancellor Merz’s industrial reforms in Germany signal a broader continental shift away from rigid climate-first frameworks toward growth-oriented pragmatism. This recalibration reflects a growing recognition that without sustained economic dynamism, industrial depth, and fiscal flexibility, strategic autonomy cannot be operationalized. In this sense, Europe’s predicament exemplifies the limits of institutional globalism: aspiration without material sovereignty yields vulnerability rather than independence.
Ukraine: The Turn toward “Compromise Peace”
Ukraine’s geopolitical trajectory has undergone a marked evolution, shaped by the cumulative realities of attrition, resource asymmetry, and alliance fatigue. The initial strategic objective of total military victory has increasingly given way to a more constrained calculus centered on preserving statehood, sovereignty, and core territorial integrity under adverse conditions. The central tension now lies between accepting de facto territorial losses and preventing the institutionalization of permanent vulnerability.
January 2026 marked a critical inflection point. The first trilateral talks involving Ukraine, Russia, and the United States, held in Abu Dhabi, brought the principal actors into direct negotiation for the first time in months. This diplomatic opening has produced a proliferation of competing peace frameworks: a 28-point US proposal, multiple 24- and 28-point European counterplans, and a 19-point US–Ukraine draft. These documents reveal not convergence, but divergence—reflecting distinct priorities regarding sequencing, security guarantees, sanctions relief, and territorial status.
France and the United Kingdom have pledged to establish post-ceasefire “military hubs” in Ukraine, intended to provide tangible security assurances beyond declaratory guarantees. President Volodymyr Zelenskyy has stated that security guarantees are “essentially ready,” suggesting that institutional blueprints exist. Yet Russia continues to reject core provisions, particularly any arrangement involving foreign military presence on Ukrainian territory. This unresolved contradiction highlights a broader structural problem: while a settlement framework may be emerging in form, its enforceability remains contested in substance.
Ukraine thus illustrates a broader shift from idealized institutional solutions toward negotiated, power-constrained outcomes—an adaptation consistent with the erosion of rules-based enforcement and the resurgence of bargaining under asymmetric conditions.
Asia-Pacific: Accelerated Hedging and Strategic Ambiguity
The Asia-Pacific region is best characterized by accelerated hedging. States across the region are simultaneously deepening economic integration with China while reinforcing security ties with the United States and regional partners. This dual-track strategy reflects a central tension: persistent fears of US disengagement coexist with inescapable economic interdependence with China.
Recent developments underscore this balancing act. Expanded intra-Asian trade arrangements, alongside initiatives such as the EU–India Free Trade Agreement and deeper ASEAN integration, reflect efforts to construct alternative economic architectures that dilute reliance on any single great power. Yet these efforts unfold against a backdrop of growing Chinese economic gravity. China’s 2025 trade surplus exceeded $1 trillion, reinforcing its centrality to regional supply chains despite geopolitical frictions.
Technological competition further complicates the picture. China’s DeepSeek breakthrough in cost-efficient AI training methods has challenged assumptions about US computational dominance, demonstrating that export controls and semiconductor restrictions have not halted Chinese innovation. In response, countries across the region are pursuing “sovereign AI” strategies—developing indigenous capabilities—while remaining dependent on US cloud infrastructure, advanced chips, and software ecosystems. This technological hedging mirrors the region’s broader geopolitical posture: diversification without decoupling.
The Asia-Pacific thus exemplifies network globalization under strategic stress, where economic integration persists even as security alignments harden.
Arctic: A New Frontier of Strategic Friction
The Arctic has transitioned from a relatively low-tension periphery into an emerging zone of geopolitical contestation. The central tension revolves around competing claims to strategic sea lanes and resources unlocked by climate change, intersecting with traditional notions of sovereignty and alliance cohesion.
The January 2026 Greenland episode crystallized these dynamics. What began as seemingly casual rhetoric regarding US acquisition of Greenland escalated into a serious diplomatic rupture. The incident symbolized a broader trend: the commodification of territory in an era where geostrategic positioning, rare earth mineral access, and infrastructure for AI and data centers carry weight comparable to conventional military considerations.
Danish political leadership publicly described the episode as “humiliating,” exposing latent alliance fractures that extend beyond the immediate controversy. Greenland sits at the intersection of multiple strategic vectors: deposits of rare earth elements critical to advanced manufacturing, geographically optimal conditions for energy-intensive AI infrastructure, and control over emerging Arctic shipping routes as ice recedes. This convergence of climate transformation, technological demand, and resource competition renders the Arctic a bellwether for future territorial disputes under conditions of transactional internationalism.
Global South: Emergence as a Swing Bloc
The Global South has shifted decisively from peripheral status to a central role as a swing bloc in contemporary great-power competition. The defining tension lies in navigating between US-led and China-led economic and technological spheres while retaining sufficient autonomy to extract benefits from both.
Africa illustrates this strategic recalibration. The continent’s Agenda 2063 and the African Union Digital Trade Protocol represent efforts to institutionalize autonomy in both physical and digital domains. These initiatives seek to prevent Africa from becoming merely an arena for external rivalry, instead positioning it to leverage competing infrastructure investments, energy partnerships, and technology transfers.
India’s trajectory offers a particularly salient example of successful swing-state strategy. The announcement of India’s sovereign AI large language model at the February 2026 AI Impact Summit signals ambitions that align fully with neither the US nor Chinese paradigms. India seeks indigenous capability while maintaining selective partnerships—accessing US semiconductor and cloud ecosystems while engaging Chinese markets and Belt and Road connectivity where advantageous.
Financial architecture is evolving in parallel. The mBridge digital currency platform, developed by central banks in China, Thailand, the UAE, and Hong Kong, now processes billions of dollars in non-dollar trade settlements. While it does not yet threaten dollar primacy, it provides alternative payment infrastructure that expands strategic choice for Global South economies.
Collectively, these regional dynamics confirm that the global landscape of 2026 is neither unipolar nor cleanly bipolar. It is multipolar, networked, and transactionally fragmented, with meaningful agency increasingly exercised by states once considered peripheral. This diffusion of agency complicates coercion, undermines uniform rule enforcement, and sets the stage for the next analytical challenge: the intersection of artificial intelligence and geopolitics as a transformative force within this fractured global system.
III. The AI-Geopolitics Nexus: A New Dimension of Globalism
By 2026, artificial intelligence has ceased to function merely as a technological sector and has instead emerged as a systemic force restructuring global power relations. AI now operates simultaneously as an economic multiplier, a military enabler, a governance challenge, and a vector of ideological influence. As one analyst has aptly characterized this transformation, the international system is witnessing the “geopolitical weaponization of technology.” In this context, AI does not simply augment existing hierarchies; it actively reshapes them by redistributing strategic advantage across states, firms, and networks.
Crucially, AI governance has become a proxy battleground for competing visions of global order. Unlike earlier waves of digital globalization, which were largely market-driven and institutionally under-regulated, AI development is unfolding under conditions of explicit state intervention, security framing, and geopolitical contestation. The result is not convergence, but the crystallization of three competing governance models, each embedding distinct assumptions about sovereignty, risk, innovation, and control.
Three Competing Models of AI Governance
The United States Model: Market Primacy with Strategic Flexibility
The United States approach to AI governance remains anchored in market-driven innovation, complemented by selective security interventions and largely voluntary standards. This model prioritizes technological leadership, speed of deployment, and flexibility over comprehensive ex ante regulation. Governance is fragmented across agencies, with enforcement relying heavily on private-sector compliance, liability frameworks, and national security carve-outs.
Two developments illustrate this orientation. First, the 2025 GENIUS Act effectively outsourced elements of digital currency and financial-technology strategy to the private sector, reinforcing the US preference for innovation-led governance rather than centralized state planning. Second, the Stargate Initiative, announced in 2025, committed approximately $500 billion in AI-related infrastructure investment over five years, encompassing data centers, compute capacity, energy systems, and defense-adjacent applications. This scale of investment underscores the US conviction that dominance in AI will be determined less by regulation than by infrastructural depth and capital mobilization.
However, this model carries inherent tensions. While it maximizes innovation velocity, it risks regulatory fragmentation, uneven ethical standards, and heightened dependence on a small number of hyperscale firms whose interests may not always align with broader strategic objectives.
The European Union Model: Rights-Based Regulation and the Sovereignty Dilemma
The European Union has adopted a fundamentally different approach, grounded in rights-based and risk-based regulation. The EU AI Act, whose core obligations begin to apply in 2026, represents the most comprehensive attempt globally to codify ethical, legal, and societal constraints on artificial intelligence. The framework emphasizes transparency, accountability, human oversight, and the protection of fundamental rights, reflecting Europe’s normative conception of digital sovereignty.
Yet this regulatory ambition creates a profound strategic dilemma. While the EU seeks to protect its domestic market and societal values, it remains structurally dependent on non-European AI ecosystems. This dependency is particularly acute at the infrastructure layer. European cloud providers’ market share declined from approximately 29 percent in 2017 to 15 percent in 2024, while three US hyperscalers now command roughly 70 percent of European cloud demand. The result is a paradox: Europe aspires to digital sovereignty while operating atop foreign-controlled platforms.
This tension exposes the limits of regulatory power in the absence of infrastructural autonomy. Compliance-heavy frameworks risk slowing domestic innovation while failing to dislodge external technological dominance, rendering sovereignty aspirational rather than operational.
The Chinese Model: State-Centric Control and Indigenous Capacity Building
China’s AI governance model is explicitly state-centric, emphasizing information control, indigenous capability, and alignment with national strategic objectives. The Data Security Law and Personal Information Protection Law institutionalize state oversight of data flows, model deployment, and algorithmic behavior. Massive state-led investment in research, talent development, and applied AI reflects Beijing’s view of artificial intelligence as a core pillar of national power.
At the same time, China’s model faces structural constraints. Venture capital availability remains more limited than in the United States, and export controls on advanced semiconductors impose real costs. Nonetheless, DeepSeek’s January 2026 breakthrough in cost-efficient AI training methods demonstrated China’s capacity to innovate under constraint, undermining assumptions that chip restrictions alone can arrest technological advancement. The episode illustrates a broader lesson: constraint-driven innovation can partially offset hardware disadvantages, particularly when coordinated at scale.
China’s model thus prioritizes resilience and control over openness, trading global interoperability for strategic autonomy.
The Infrastructure Layer: The Material Foundations of Digital Sovereignty
Across all three models, a common realization has emerged: AI competition is fundamentally an infrastructure race. Digital sovereignty has shifted from an abstract policy aspiration to a concrete geopolitical lever, operating through several interdependent layers.
Data Sovereignty.
Control over training data determines not only technical performance but also the normative orientation of AI systems. The values, biases, and priorities embedded in models reflect the datasets on which they are trained, making data governance a subtle but powerful form of influence.
Compute Sovereignty.
Access to affordable, scalable compute—particularly GPUs—has become a binding constraint on innovation. States lacking domestic compute capacity find their AI strategies hollow, with innovation timelines effectively dictated by external actors. In response, governments are funding national compute pools and public–private partnerships to provide researchers and startups with access to advanced hardware.
Chip Sovereignty.
Semiconductor supply chains and export controls function as strategic throttles. Licensing thresholds, node restrictions, and manufacturing chokepoints determine who can train frontier models at scale. Even marginal adjustments to these thresholds can reshape competitive dynamics across entire ecosystems.
Cloud Sovereignty.
Dependence on cloud platforms governed by foreign jurisdictions places economic and security outcomes under external legal and political control. Jurisdictional reach, data access provisions, and emergency powers introduce latent vulnerabilities that transcend purely technical considerations.
Energy Sovereignty.
AI’s enormous power requirements have elevated energy from a background input to a strategic variable. Capacity constraints, grid resilience, and sustainability targets are forcing reconsideration of centralized mega–data center models in favor of distributed and edge-based architectures. Energy availability increasingly shapes where AI can scale.
As one influential assessment has concluded:
“AI is no longer only software. It is an infrastructure race. And infrastructure is where sovereignty lives.”
Taken together, these dynamics reveal that AI is not simply intensifying existing forms of globalization; it is reconstituting them. Institutional globalism struggles to regulate AI effectively, network globalization deepens dependence through infrastructure and data flows, and transactional internationalism weaponizes access and denial. The AI–geopolitics nexus thus represents a new dimension of globalism—one in which power is exercised less through treaties and tariffs than through compute, code, and control over the material foundations of intelligence itself.
This transformation sets the stage for the next analytical task: assessing how these forces are likely to interact over time, generating distinct pathways of escalation, fragmentation, or adaptation between 2026 and 2030.
IV. Predictive Scenarios and Ramifications (2026–2030)
The interaction of fragmented globalism, regional recalibration, and the accelerating AI–geopolitics nexus produces a constrained but non-deterministic set of plausible futures. Rather than offering linear forecasts, this section outlines three probabilistic scenarios that capture the dominant structural trajectories likely to shape the international system between 2026 and 2030. These scenarios are not mutually exclusive endpoints; elements of each may coexist or overlap temporally. Their analytical value lies in clarifying trade-offs, stress points, and early warning indicators relevant for G7 policy planning.
Scenario A: The “Fragmented Fortress”
Estimated Probability: 55 percent
Under this scenario, the United States continues along a transactional internationalist path, privileging bilateral leverage, selective protectionism, and technological primacy, while Europe and other regions pursue constrained forms of defensive autonomy. Global integration persists, but in segmented and securitized forms, producing a world characterized by hardened blocs, regulatory divergence, and persistent strategic friction.
Socioeconomic Dynamics
Europe undergoes a period of “slow-motion deregulation”, driven by competitive pressure from US and Chinese AI ecosystems. Chancellor Merz’s industrial reforms in Germany signal a broader continental shift away from climate-centric maximalism toward industrial realism, acknowledging that competitiveness, energy security, and technological capacity are prerequisites for sovereignty. This recalibration remains incremental rather than revolutionary, constrained by political fragmentation and regulatory inertia.
Global economic growth remains subdued, averaging 2.6–2.7 percent annually through 2026–2027, well below the pre-pandemic average of approximately 3.2 percent. Elevated defense spending, higher energy costs, and fragmented trade regimes suppress productivity gains. Wealth disparities widen between technology-exporting economies—notably the United States, China, and select Asian states—and technology-importing regions, including much of Europe, Latin America, and Africa.
A “multi-nodal trade patchwork” crystallizes. Four semi-distinct nodes emerge:
A US-centered node characterized by transactional bilateralism and security-conditioned market access;
A China-centered node emphasizing self-sufficiency combined with outreach to the Global South;
A plurilateralist node (EU, Japan, Canada, Australia) seeking to preserve modified rules-based alignment;
A BRICS+ (excluding China) node prioritizing sovereignty-driven growth and policy flexibility.
Trade remains robust within nodes but increasingly conditional across them.
Security Architecture
NATO evolves into a contingent alliance. The United States continues to provide the nuclear umbrella, strategic enablers, and high-end logistics, but increasingly expects allies to supply “boots on the ground” and independently finance their defense-industrial bases. All NATO members exceed the 2 percent of GDP spending threshold by 2025, while gradual movement toward 3.5 percent core defense spending by 2035 generates fiscal strain and domestic political resistance.
European defense investment rises to €150–180 billion annually by 2028, yet persistent problems of integration, interoperability, and duplication limit strategic payoff. In Ukraine, any settlement that emerges features a frozen conflict line, limited foreign military presence in the form of UK–French “hubs,” and deliberately ambiguous security guarantees—testing alliance cohesion and deterrence credibility.
Regional Ramifications
Europe risks drifting toward managed mercantilism, where trade liberalization applies primarily within trusted ideological or regulatory blocs. Digital markets fragment along compliance lines: EU AI Act governance, US voluntary standards, and Chinese state control. Divergent threat perceptions intensify intra-EU tension, with Poland, the Baltic states, and Nordic countries maintaining a hardline stance toward Russia, while France and Germany pursue pragmatic accommodation.
Asia-Pacific hedging hardens into a permanent posture. ASEAN states expand Chinese imports while deepening security cooperation with the United States. India consolidates its role as a pivotal swing state, pursuing genuine non-alignment through sovereign technology initiatives.
Middle East energy exporters leverage AI infrastructure investment—critical minerals dialogues, data center hubs, and logistics corridors—to diversify beyond hydrocarbons.
Africa becomes a competitive arena for infrastructure influence, with initiatives such as the Lobito Corridor attracting rival US, Chinese, and European investment.
Likelihood Indicators: Continued US tariff volatility; sustained European defense spending trajectories; Chinese growth stabilizing in the 4–5 percent range; failure to reach a durable Ukraine settlement beyond Q2 2026.
Scenario B: The “Grand Bargain” Rupture
Estimated Probability: 25 percent
In this scenario, the United States bypasses European intermediaries to strike direct strategic bargains with Russia and China, fundamentally reorganizing great-power relations and marginalizing traditional alliance structures.
Triggering Events
A Ukraine settlement is imposed through US–Russia bilateral negotiations, emerging from February–March 2026 trilateral talks in Abu Dhabi as a fait accompli. Concurrently, a US–China “understanding” trades tariff reductions for constraints on technology transfer and tacit maintenance of the Taiwan Strait status quo. European allies are presented with finalized frameworks, effectively forced to choose between ratification and isolation.
Socioeconomic Dynamics
A freeze in the Ukraine conflict triggers a sharp adjustment in energy prices, temporarily benefiting European industry while exacerbating political fractures within the EU. Eastern members—particularly Poland and the Baltic states—view the settlement as strategic betrayal, while France and Germany prioritize economic normalization.
The Global South exploits intensified great-power competition, extracting concessions in critical minerals, AI partnerships, and infrastructure investment. Dollar dominance begins measurable erosion as mBridge and alternative settlement systems expand, with the dollar’s share of global reserves declining to 65–70 percent, down from roughly 75 percent—still dominant but no longer unchallenged.
Chinese technology firms gain strategic breathing room. AI development accelerates in both the US and China, while Europe falls further behind, constrained by regulatory rigidity and underinvestment.
Security Architecture
Trust in US security commitments reaches a nadir. Nuclear proliferation risks rise in East Asia as South Korea and Japan reassess deterrence options. In Europe, Poland and the Baltic states consider independent nuclear arrangements or accelerated integration into the French force de frappe.
A “Concert of Powers” emerges, echoing 19th-century great-power management and displacing multilateral frameworks. Middle powers—India, Brazil, Indonesia, Turkey—gain influence as mediators and spoilers in bipolar negotiations.
Regional Ramifications
Europe faces an existential crisis. The EU either rapidly federalizes defense and foreign policy under French leadership or fragments into distinct security spheres, with Nordic–Baltic cooperation diverging from Mediterranean pragmatism. A rebranded form of Ostpolitik re-emerges.
Ukraine accepts territorial losses—including Crimea and parts of the Donbas—in exchange for NATO-equivalent security assurances of uncertain credibility, becoming a permanent buffer state with long-term reconstruction dependence.
Taiwan confronts profound uncertainty. Accelerated indigenous defense development and nuclear threshold considerations enter strategic debate.
Global South benefits materially from competitive bidding but risks becoming a theater for influence campaigns and normalization of digital authoritarian practices.
Likelihood Indicators: Breakthrough Ukraine negotiations by March 2026; US tariff pauses on Chinese goods; stagnation in European defense spending after initial increases; Russian economic stabilization via energy exports to non-sanctioning states.
Scenario C: The “Innovation Divergence”
Estimated Probability: 20 percent
Here, technological capability—particularly in AI, quantum computing, and biotechnology—becomes the primary determinant of sovereignty, producing structural gaps between leaders and followers that prove increasingly insurmountable.
Structural Drivers
AI capabilities reach an inflection point where economic and military advantages compound nonlinearly. The United States and China form an explicit or tacit digital duopoly, managing catastrophic AI risks cooperatively while sustaining strategic competition. Europe risks becoming a technologically subservient but socially stable client—“a museum with a nice coffee shop.”
Socioeconomic Dynamics
Wealth disparities between technology leaders and followers drive a sharp increase in global inequality. Labor markets bifurcate: AI-adjacent roles command premium wages, while traditional knowledge work experiences compression. Winner-take-most dynamics dominate AI-enabled sectors, producing oligopolistic concentration.
Education systems lag behind skill requirements. An “AI literacy gap” emerges, exceeding the scale of the previous digital divide.
Security Architecture
Cyberwarfare and AI-driven defense systems—autonomous drones, predictive intelligence, algorithmic targeting—become primary deterrents. Traditional force structures diminish in relative importance, while critical infrastructure vulnerability escalates. Nuclear deterrence persists but is supplemented by doctrines of cyber–mutual assured destruction.
Technological Landscape
Distributed AI architectures—edge computing, micro–data centers, regional inference—reduce but do not eliminate hyperscaler dominance. Energy constraints drive geographic redistribution of AI infrastructure, with Iceland, the Nordics, and Canada emerging as hubs.
“Sovereign AI” succeeds only for states achieving critical mass across multiple stack layers. Quantum computing breakthroughs between 2028 and 2030 threaten to upend existing AI advantages, triggering a new scramble.
Regional Ramifications
Europe accepts technological client status in exchange for regulatory leverage, becoming a global rule-setter for AI ethics while purchasing capabilities from US and Chinese firms. European champions survive in niche domains.
Asia-Pacific sees Japan and South Korea integrate deeply into the US tech ecosystem. Southeast Asia becomes a testing ground for competing AI standards. India establishes a limited third pole in select domains.
Africa faces exclusion risk absent massive investment, though mobile-first AI adoption offers leapfrog potential.
Latin America bifurcates between US-aligned and China-aligned technology pathways.
Governance Implications
Globalism survives primarily in digital form: virtual collaboration on AI safety, climate modeling, and pandemics continues even as physical borders harden. Global governance frameworks emerge but enforcement remains bloc-specific. The digital divide surpasses traditional development metrics as the primary marker of inequality.
Likelihood Indicators: Frontier AI breakthroughs by 2028–2029; US–China AI safety accords; persistent European underperformance at the frontier; energy-driven distributed infrastructure; accelerating quantum advances.
V. Cross-Cutting Analytical Themes
The Paradox of Connectivity
The defining paradox of globalism in 2026 is the coexistence of unprecedented material integration with deliberate political and institutional fragmentation. Trade volumes continue to expand, digital interdependence deepens, and capital flows remain globally entangled—yet the multilateral frameworks that once stabilized these exchanges are steadily eroding. Supply chains, rather than shortening, are becoming more geographically dispersed even as governments pursue selective autarky in sectors deemed critical to national survival.
This contradiction reflects a profound paradigmatic shift: from the efficiency-optimization logic that dominated the 1990–2020 period toward a resilience-optimization logic shaping the 2020–2030 decade. Redundancy, diversification, and political reliability now outweigh cost minimization. The result is not deglobalization, but a re-wiring of globalism—denser, more politicized, and structurally brittle.
The Return of Geography
After decades in which globalization discourse proclaimed that “the world is flat,” geography has reasserted itself as destiny. Physical location once again conditions power and vulnerability: proximity to critical mineral deposits, access to Arctic shipping routes, availability of low-cost renewable energy for datacenters, and distance from kinetic conflict zones now shape national trajectories.
Greenland’s sudden prominence in January 2026 crystallizes this return of geography. What once appeared peripheral is now central—not because of ideology, but because of material constraints imposed by climate change, energy transition, and AI infrastructure requirements. Geography no longer merely frames strategy; it actively structures feasible choices.
The Trust Deficit
The most corrosive long-term consequence of the current transition is not economic disruption or military risk, but the erosion of trust among traditional allies. The increasingly transactional posture of U.S. leadership—summarized bluntly by one senior official as “we’re not a reliable partner anymore”—has generated a perception gap that no amount of declaratory reassurance can easily close.
European strategic autonomy is thus emerging less from confidence than from anxiety-driven hedging. Once trust deteriorates, its restoration is generational rather than cyclical. Denmark’s experience over Greenland is emblematic: even absent material loss, perceived humiliation leaves institutional scar tissue that reshapes alliance psychology for decades. Trust, once broken, becomes a structural variable rather than a diplomatic lever.
The “Missing Middle”
The international system is increasingly polarized between great powers (notably the United States and China) and empowered small or swing states that exploit niche positioning, strategic geography, or regulatory leverage. Caught between these poles are the traditional middle powers—European states, Japan, South Korea, Canada—whose influence is being structurally compressed.
These states are too dependent to act with full autonomy, too consequential to be ignored by major powers, and too internally divided to coordinate effectively among themselves. The result is strategic paralysis: capacity without cohesion, ambition without leverage. This “missing middle” is not a temporary imbalance but a durable feature of the emerging order.
The Data Sovereignty Trilemma
At the heart of the AI-geopolitics nexus lies an unavoidable data sovereignty trilemma. States must choose between three objectives:
Data localization to preserve sovereignty and political control;
Data openness to ensure AI model quality and global competitiveness;
Robust data protection to safeguard privacy and civil liberties.
No system can fully optimize all three simultaneously. Societies resolve this trilemma differently, producing structurally incompatible digital ecosystems. These divergences are not merely regulatory—they encode political values into technological infrastructure, hardening fragmentation at the deepest layers of the global system.
VI. Conclusion for G7 Policy Makers
The metaphorical “sign in the window” of the international rules-based order has been removed. As Mark Carney has observed, the fiction that rules constrained the strong was always only partially true—but it functioned as a stabilizing bargain. That bargain no longer holds.
What we are witnessing is not a transition to an updated version of the post-1945 system, but a rupture producing a fundamentally different operating environment. The period 2026–2030 will reward not rhetorical commitment to past norms, but adaptive capacity grounded in material realities.
Strategic Imperatives
Differentiate Noise from Signal
Policy must separate performative diplomacy and media-amplified rhetoric from structural shifts with lasting impact. Greenland-related discourse, for example, matters less than underlying trends in supply-chain reconfiguration, defense industrial investment, and AI infrastructure build-out. Geopolitical reality moves slower—but more decisively—than news cycles.
Accept Transactional Reality
American leadership, regardless of administration, is likely to remain more transactional and less institutionally anchored than during the 1945–2016 period. Planning assumptions must internalize this shift. European strategic autonomy can no longer remain aspirational; it must translate into deployable capabilities, industrial depth, and fiscal commitment.
Invest in Domestic Gravity
In network-driven globalism, relevance flows from industrial and technological mass, not historical prestige or institutional seniority. States that lack domestic “gravity” become rule-takers regardless of formal status. Germany’s emerging shift under Merz toward growth-oriented industrial realism signals the direction of travel: productive capacity over symbolic politics.
Manage the AI Transition Strategically
Digital sovereignty does not require autarky. It requires selective interdependence. Policymakers must identify which layers of the AI stack—data, compute, chips, models, applications—are genuinely sovereignty-critical and which can be safely sourced through partnerships. Avoiding both dependency traps and wasteful duplication is essential.
Prepare for Contingencies, Not Certainties
The three scenarios outlined—Fragmented Fortress, Grand Bargain, Innovation Divergence—are not mutually exclusive and may overlap temporally or regionally. Resilient policy frameworks must be flexible, informing procurement, alliance design, regulatory sequencing, and industrial strategy without presuming a single future.
Rebuild Trust Incrementally
Alliance cohesion can no longer be assumed. Trust must be rebuilt through consistent delivery, shared capability development, and transparent burden-sharing—not through episodic summits or rhetorical reaffirmations. Reliability demonstrated over time will matter more than grand gestures.
Engage the Global South as Strategic Actors
Swing states are no longer peripheral. India, Brazil, Indonesia, South Africa, Gulf states, and ASEAN members collectively represent the majority of humanity and a growing share of global output. They cannot be managed as proxies in U.S.–China competition. Engagement must be substantive, reciprocal, and respectful of agency.
Tactical Recommendations
Defense Spending
Meeting a sustained 3.5% of GDP defense spending target by 2035 requires immediate action rather than deferred commitments. Fiscal allocations must be paired with defense industrial base expansion, skilled workforce development, and procurement reform to reduce bottlenecks and cost overruns. Pooled procurement, joint R&D platforms, and standardized requirements across allies are essential to avoid fragmentation and wasteful duplication. Without industrial coordination, higher spending will translate into inflation rather than capability.
Technology Policy
Technology governance must balance regulatory protection with innovation permission. While frameworks such as the EU AI Act establish necessary guardrails, excessive rigidity risks producing “compliance leaders” rather than innovation leaders. Selective regulatory forbearance—regulatory sandboxes, phased compliance, and differentiated treatment for frontier versus downstream applications—should be employed to preserve competitiveness without abandoning societal safeguards.
Trade Strategy
Adopt a posture of “open plurilateralism”: deep integration with trusted partners combined with pragmatic, rules-lite engagement with competitors where mutual dependence persists. Trade policy should prioritize resilience and diversification over purity. Imperfect but strategic agreements—such as EU–Mercosur and EU–India—should advance despite political friction, as delay itself now constitutes strategic cost.
Ukraine Settlement
If a settlement is reached, it must rest on credible enforcement mechanisms, not aspirational language. This includes a sustained European troop presence, verified force caps, and pre-agreed rapid-response triggers to violations. The failure of the Minsk Accords underscores the danger of agreements lacking enforcement capacity. Security guarantees must be operational, not declaratory.
Energy Security
AI-driven power demand intersects dangerously with climate commitments and the lingering threat of energy weaponization. Strategic autonomy therefore requires accelerated renewable deployment, a pragmatic revival of nuclear energy, and expanded grid interconnection across regions. Energy independence is not merely an economic objective; it is the material foundation of geopolitical autonomy.
Critical Minerals
Secure supply chains for rare earths, lithium, cobalt, and related inputs through diversified partnerships and domestic capacity-building. Priority avenues include Africa’s Lobito Corridor, targeted Latin American agreements, expansion of domestic processing and refining capacity, and investment in recycling and substitution technologies. Mineral dependence is emerging as the next strategic chokepoint after energy and semiconductors.
Metrics for Success
Success in this environment should be assessed not by declaratory alignment but by observable capabilities and outcomes, including:
Alliance cohesion despite disagreement, measured through joint exercises, interoperability standards, shared procurement, and intelligence integration rather than rhetorical unity.
Economic resilience to shocks, reflected in supply-chain redundancy, strategic reserves, and domestic manufacturing capacity in critical sectors.
Technological competitiveness, assessed through AI model performance, semiconductor fabrication capability, quantum computing R&D depth, and patent generation.
Demographic stability, including skilled immigration inflows, workforce productivity growth, and stabilization of birth rates.
Institutional adaptability, defined by the capacity to update governance frameworks in response to changing conditions rather than defending obsolete structures.
Final Assessment
The rupture underway is real—but it is not terminal. Globalism is not ending; it is transforming from an institutional, rules-based order into a system of networked, competitive interdependence. In this environment, power increasingly outweighs principle, capabilities matter more than commitments, and resilience demands acceptance of redundancy costs.
States that adapt—by investing in material capacity, technological depth, and strategic flexibility—will navigate this transition successfully. Those clinging to late-1990s mental models of frictionless globalization and automatic alliance cohesion will find themselves progressively marginalized.
The question facing policymakers is not whether to engage with this new world, but how to shape it toward outcomes compatible with democratic values, open societies, and sustainable development. Strategic objectives can endure, but the tools and tactics must evolve.
As of February 2026, the decisive period lies immediately ahead. The trajectory of a Ukraine settlement (or its failure), NATO summit outcomes, U.S.–China negotiations, European defense integration, and AI governance frameworks established in 2026 will structure the strategic terrain for the decade to come. The window for meaningful strategic choice remains open—but it is narrowing rapidly.
Note on Methodology
This analysis synthesizes official data from NATO, UNCTAD, the World Economic Forum, and European Union institutions, alongside research from leading policy and analytical organizations including CSIS, the Brookings Institution, the Atlantic Council, and the Boston Consulting Group. All empirical claims draw on sources published between October 2025 and January 2026. Scenario probabilities represent the author’s judgment based on trajectory analysis and should be treated as planning heuristics rather than forecasts.
