Davos elite offers unsettling glimpse of the new ‘world order’

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Imagine a world where the relationships and roles that have defined the global order for the past three quarters of a century have been turned on their head.

Communist China is the world’s champion of free trade and globalization. The United States has turned its back on liberal values and is cozying up to Russia. And Europe, spurned by Washington and London, is turning to Beijing to fill the void.

Welcome to the World Economic Forum (WEF) in Davos circa 2017. This is not a dream. It is, or may be, the new reality in a world shaken by economic and geo-political tremors not seen since the fall of the Berlin Wall, or possibly World War Two.

In past years, this annual gathering of leaders, CEOs and bankers in the Swiss Alps has had a glum undertone to it because of the succession of crises, mainly of a financial nature, rocking the globe.

But this year there was a sense that something far bigger is going on, a shifting of the tectonic plates of global politics that is breeding deep uncertainty and may herald a return to a rougher, tougher world defined by national self interest.

“Cautiously pessimistic” is how Robin Niblett, director of the London-based think tank Chatham House described the mood.

EU foreign policy chief Federica Mogherini spoke of a new paradigm in foreign policy.

“We’ve been used to friendships, natural partnerships based mainly on values and history and probably we’re entering into a phase where we will be maybe more pragmatic, transactional, some say emotionless,” she told Reuters.

Chinese President Xi Jinping stole the show in Davos with a speech that made it clear Beijing is eager to fill any vacuum in global leadership arising from the arrival of Donald Trump in the White House.

His address to a vast, packed hall, in which he defended globalization, free trade and multilateralism, was both diplomatic and opportunistic.

Xi took indirect digs at Trump, only days before his inauguration. And he sent an unmistakable message to a rudderless Europe: China is here for you.

EUROPE AND CHINA

“The Chinese have seized the opportunity,” said a senior European Commission official. “They have developed such deep knowledge about us in the last 10 years that they know exactly how to tweak a message to a Western audience that is at a loss because of Brexit and Trump.”

“Whichever way you look at it, the EU and China will have to lead on climate change,” the official said. “If we want to try to maintain a world economic model based on openness and free trade, it could be led by the EU and China if we do it smart.”

This is a new world, Niblett said, in which the Europeans see Russia as a threat and China as an opportunity, while Trump sees China as a threat and Russia as an opportunity.

But are we really there yet? Perhaps not. Much depends on Trump, who stayed away from Davos on the week of his inauguration but dominated discussions at the public panels, closed-door meetings and the off-record breakfasts and lunches.

The questions about a Trump presidency fell into three main categories: How will the contradictions in his economic and foreign policies be resolved? Who will really have the say in his administration? And why that perplexing fondness for Vladimir Putin?

“All Western leaders have had a moment of madness when they thought they could do a deal with Vladimir Putin,” said one former leader of a Western country, predicting that Trump’s cozy relationship with the Russian president would not last.

A veteran of previous US administrations predicted that members of Trump’s cabinet would push back hard against many of his foreign policy plans.

“We could end up in parallel universes, if you will, of real politics, real policies, real decisions that look pretty intelligent. And then a sort of public commenting, tweeting dialogue that continually raises eyebrows,” that person said.

DOLLAR DILEMMA

On economic policy, something will also have to give. During his presidential campaign, Trump accused the Federal Reserve of keeping interest rates too low for too long.

Last month it began raising them on expectations of a pick-up in growth and inflation, spurred on by Trump’s plan to spend on infrastructure and slash taxes.

Now that is fuelling expectations of a rise in the dollar, and Trump is calling dollar strength a problem, a message echoed in Davos by Anthony Scaramucci, the one member of his team who made the trek to Switzerland.

In Davos, David Rubenstein of the Carlyle Group described dollar strength as the most serious economic challenge of 2017, warning it could spur a 1990s-style emerging markets crisis as countries that have borrowed heavily in dollars are squeezed.

“It would be ironic if Mexico had to be bailed out by the (Trump) administration” because of its own policies, Rubenstein said to chuckles in the audience.

Oddly, for a meeting that takes place in Europe and has traditionally lured leaders from across the EU, it was the Europeans that made the least noise, reduced to bystanders as Xi spelled out his vision and speculation swirled about Trump.

Germany’s Angela Merkel, described as the last defender of the western liberal democratic order after Trump’s election, had signaled she would come but then decided against it.

And so it was left to a few European ministers and EU commissioners to stand up for European values.

To make matters worse, British Prime Minister Theresa May turned up and explained to everyone why leaving Europe would make Britain stronger.