The End of Comfortable Assumptions: Why European Business Must Prepare for Strategic Autonomy

Jan 23, 2026 - 07:00

Mark Carney’s Davos warning crystallizes Europe’s existential challenge—weaning itself from eight decades of US dependency amid weaponized trade, vanishing multilateralism, and Trump’s mocking contempt for transatlantic partnership

Europe must now prepare for the worst. Donald Trump may have stepped back from immediate military action against Greenland and punitive tariffs against its European supporters, but his mocking antipathy toward Europe proved overpowering. It is way beyond time for Europe to absorb that message, rip up eight decades of dependency, and go it alone wherever it can. The comfortable fiction of transatlantic partnership—already fraying—has been exposed as subordination masquerading as sovereignty.

Canadian Prime Minister Mark Carney’s January 20 address to the World Economic Forum in Davos articulated what European policymakers privately acknowledge but publicly avoid: “We are in the midst of a rupture, not a transition. The old order is not coming back.” Carney’s warning carries particular resonance for Europe, which faces identical existential pressures from both Washington and Beijing. His diagnosis is brutal: great powers have begun weaponizing tariffs as leverage, financial infrastructure as coercion, and supply chains as vulnerabilities to be exploited. For European business, the implications are profound and immediate.

The Canadian Blueprint for Strategic Autonomy

Carney’s prescription—what he terms “values-based realism”—offers Europe both warning and template. Canada has fundamentally shifted its strategic posture, acknowledging that “old, comfortable assumptions that geography and alliance memberships automatically conferred prosperity and security are no longer valid.” This awakening followed Trump’s Greenland territorial threats and casual dismissal of Canada as America’s “51st state”—precisely the contempt Europe now confronts.

The Canadian response is instructive. Ottawa has concluded strategic partnerships with both China and Qatar, negotiated free trade agreements with India, ASEAN, Thailand, Philippines, and Mercosur, and championed efforts to bridge the Trans-Pacific Partnership with the European Union—creating a potential trading bloc of 1.5 billion people. On critical minerals, Canada is forming G7-anchored “buyers’ clubs” to diversify away from concentrated supply. On artificial intelligence, cooperation with like-minded democracies ensures nations won’t be forced to choose between hegemons and hyperscalers.

“You cannot live within the lie of mutual benefit through integration when integration becomes the source of your subordination,” Carney declared, directly challenging the foundational assumption of post-1945 globalization. For European business accustomed to frictionless transatlantic commerce, this represents a philosophical rupture as significant as any tariff.

Europe’s Dual Challenge: Washington and Beijing

As the transatlantic rift widens, Europe confronts strategic coercion from multiple directions. Trump’s January 2026 threat of 10% tariffs against eight European nations over Greenland (escalating to 25% by June) demonstrated Washington’s willingness to weaponize market access for territorial ambitions. Although Trump postponed immediate implementation, the damage to European assumptions about American reliability persists. The president’s 226 executive orders in his second term’s first year—exceeding the 220 across his entire first term—weaponizes institutional agility against European bureaucratic deliberation.

Simultaneously, Europe must wrestle with China’s economic statecraft. Beijing has persistently used economic integration as a weapon and tariffs as leverage—precisely the pattern Carney identified. The European Commission’s Anti-Coercion Instrument, authorized to impose €108 billion in retaliatory tariffs, remains untested. Europe’s structural vulnerability stems from its 27-member consensus requirements, which the European Central Bank characterizes as equivalent to 65% tariffs on goods and 100% on services within the single market itself—internal friction that compounds external pressures.

For European business, this dual coercion creates impossible trade-offs. The Trump administration’s escalation dominance in tariff threats—capable of imposing 1,000% tariffs “without batting an eyelid,” according to Agathe Demarais of the European Council on Foreign Relations—contrasts with Europe’s dreaded working groups requiring weeks or months for coordinated responses. Meanwhile, dependence on Chinese critical minerals, semiconductor equipment, and consumer markets creates vulnerability to Beijing’s retaliatory toolkit.

The Trade Diversification Imperative

Commendably, the EU is copying Canada’s playbook. The January 17, 2026 signing of the EU-Mercosur free trade agreement—after 25 years of negotiations—creates one of the world’s largest trading zones covering 700 million people. The accord eliminates 90% of tariffs on goods ranging from Argentine beef to German cars, with bilateral trade valued at €111 billion in 2024. European Commission President Ursula von der Leyen framed the strategic imperative at Davos: “The more trading partners we have worldwide, the more independent we are.”

However, ratification faces immediate obstacles. The European Parliament voted 334-324 on January 21 to refer the agreement to the European Court of Justice over legal concerns—potentially delaying implementation by two years. France, Europe’s major agricultural producer, voted against the deal amid farmer protests, with Foreign Minister Jean-Noel Barrot celebrating parliament’s vote as aligned with French concerns. The fragility of even completed trade agreements exposes Europe’s internal coordination challenges precisely when external threats demand unity.

Parallel negotiations with India accelerated following Trump’s tariff impositions. German Chancellor Friedrich Merz suggested von der Leyen and European Council President Antonio Costa could sign an EU-India free trade agreement by late January 2026, characterizing it as “an encouraging sign on the path to continue forging and concluding free trade agreements” amid “a renaissance of protectionism.” Brazil is simultaneously negotiating agreements with the UAE, Canada, and Vietnam while expanding a tariff-preference pact with India.

For European manufacturers, these diversification efforts offer medium-term hedges against concentrated exposure to volatile US and Chinese markets. The immediate challenge is navigating transition periods where existing supply chains remain vulnerable to sudden tariff impositions while alternative relationships require years to fully mature. The oil market’s structural oversupply and European government debt dynamics compound business planning uncertainty during this realignment.

Removing Internal Barriers: The Unfinished Single Market

Europe’s capacity to pursue strategic autonomy depends fundamentally on completing its internal market—a project eight decades in the making that remains stubbornly incomplete. Intra-EU trade declined from 23.5% of EU GDP in 2023 to 22% in 2024, according to the European Commission’s draft annual single market report. Outside pandemic disruptions, this represents the first such decline in nearly a decade—precisely the moment when deepened integration matters most for countering external pressures.

ECB President Christine Lagarde’s frustration has turned acidic. “Our internal market has stood still,” she declared, warning that continued inertia risks turning vulnerability into chronic malaise. Her analysis estimates hidden barriers inside the Union impose costs equivalent to a 65% tariff on goods and 100% on services. “If all EU countries were merely to lower their barriers to the same level as that of the Netherlands, internal barriers could fall by about 8 percentage points for goods and 9 percentage points for services,” Lagarde argued. “If we only did a quarter of that, it would be sufficient to boost internal trade enough to fully offset the impact of US tariffs on growth.”

The ECB calculates that for every €100 of value added produced in EU countries, only €20 of goods flow between member states. In contrast, the United States sees $45 crossing state borders for every $100 produced. This integration gap represents foregone economies of scale that leave European firms perpetually mid-sized relative to American and Chinese competitors. Venture capital flees to America where exits are easier. Services—Europe’s poorest-performing sector—suffer from arcane licensing rules and local content requirements. Digital markets fragment along language lines.

BusinessEurope, the main corporate lobby, reports members now find “exporting to non-EU markets more attractive than trading within the single market.” Francesca Stevens of packaging-industry group Europen blames “complex and burdensome regulation” and a “false ideological divide between competitiveness and sustainability.” The draft Commission report acknowledges bluntly: “Fragmented national legal rules continue to make it complex and costly to establish and operate companies across the EU, with no progress to date.”

For European business, this represents existential failure. Firms cannot achieve the scale necessary to compete globally when the home market imposes greater friction than export markets. The time needed to craft EU-wide product standards has stretched to four years. Foreign direct investment into the bloc has sunk 22% in five years. The promised Capital Markets Union—intended to channel savings toward high-risk, high-reward investments—remains incomplete, with home-bias persisting as regulatory differences among member states deter cross-border capital flows.

Technology Investment: The Competitiveness Battleground

Europe’s capacity to decouple from US dependency hinges critically on technology sovereignty. The continent faces stark deficits in artificial intelligence, semiconductor manufacturing, cloud computing, and digital infrastructure—precisely the domains where American markets are broadening beyond concentrated tech positions while Europe struggles to create competitive champions.

The Emergent AI funding phenomenon—$70 million Series B just three months after Series A, achieving $50 million ARR in seven months—exemplifies the velocity differential between American and European tech ecosystems. “Vibe coding” and autonomous AI agents democratize software creation at precisely the moment when European firms need technological acceleration to compensate for market fragmentation. Yet Europe represents only the second-largest market for such platforms despite comprising one-quarter of new users—capital and talent continue flowing westward.

European Commission initiatives to double down on technology investment confront structural obstacles. National champions strategies fragment R&D spending across 27 jurisdictions. Regulatory approaches prioritizing consumer protection over innovation velocity—exemplified by GDPR, the Digital Markets Act, and AI Act—impose compliance costs that advantage incumbents over startups. The absence of pan-European venture capital funds with scale matching American counterparts constrains growth-stage financing.

For European business, technology dependence on American cloud hyperscalers (Amazon, Microsoft, Google, Oracle) and Chinese hardware manufacturers (especially semiconductors and networking equipment) creates strategic vulnerabilities that tariff diversification cannot address. True autonomy requires indigenous capabilities in advanced semiconductors, AI training infrastructure, and quantum computing—investments requiring coordination across member states that internal market fragmentation currently prevents.

Defence and Hard Power: The Awakening

Europe is slowly rebuilding hard power to support Ukraine and counter revanchist Russia, yet remains structurally dependent on American military capabilities. Germany’s 2026 defence spending of €83 billion (2.83% of GDP, rising to projected 3.56% by 2029) represents philosophical transformation for a nation that long outsourced security to Washington. The shift extends across the continent as Trump’s contempt for NATO Article 5 commitments forces European capitals to confront military inadequacy.

This rearmament carries profound implications for European business. Defence procurement—offering stable, long-term contracts—enables companies to offset declining revenues in other sectors. The Federation of German Security and Defence Industries reports membership rising from 243 to 440 companies since November 2024, with most entrants from the small and medium-sized enterprise sector. However, Europe’s fragmented defence industrial base lacks interoperability, with 27 separate procurement systems duplicating capabilities rather than specializing for collective efficiency.

The financial burden is substantial. Germany’s public debt is projected to reach 80.25% of GDP by 2029 (versus 62.5% currently), with debt servicing costs doubling. Similar dynamics play out across European capitals, where pension fund retreats from long-dated sovereign bonds force governments toward shorter-maturity borrowing precisely as defence spending demands long-term fiscal commitments. For European industry, the question is whether fragmented national programmes can generate the economies of scale necessary for competitive defence exports to offset import costs.

The Wicked Challenge: Why Decoupling Seems Impossible

For Europe to wean itself off the United States is indeed a wicked challenge. Many would say it’s impossible given the depth of economic, financial, technological, and military interconnections. Transatlantic foreign direct investment stock exceeds $7 trillion. American tech platforms dominate European digital infrastructure. NATO remains the cornerstone of continental security despite Trump’s unreliability. The dollar anchors global financial architecture, from correspondent banking to commodity pricing to reserve holdings.

Carney’s realism is instructive: “Great powers can afford for now to go it alone. They have the market size, the military capacity and the leverage to dictate terms. Middle powers do not.” Europe, despite its 449 million inhabitants and €16 trillion economy, functions as a middle power in Carney’s framework—lacking the federal cohesion that converts aggregate scale into geopolitical leverage. When negotiating bilaterally with hegemons, middle powers “negotiate from weakness. We accept what’s offered. We compete with each other to be the most accommodating. This is not sovereignty. It’s the performance of sovereignty while accepting subordination.”

The multilateral institutions on which middle powers relied—the WTO, UN, COP—face existential threats. Carney’s prescription of variable geometry coalitions (different partners for different issues) offers pragmatic adaptation, yet requires coordination capacity that Europe’s consensus requirements obstruct. His warning resonates: “If we’re not at the table, we’re on the menu.” European business increasingly finds itself on the menu as both Washington and Beijing dictate terms to fragmented national capitals unable to coordinate responses.

Strategic Implications for European Business

Still, the effort must be made. Canada is showing the way, and Europe must follow or accept permanent subordination. The pathway forward demands simultaneous action across multiple dimensions that European business should actively support:

First, complete the internal market. This means ruthlessly eliminating regulatory barriers that make intra-EU commerce more difficult than external trade. Lagarde’s proposal to harmonize national standards to Netherlands-level integration would deliver growth sufficient to offset US tariff impacts entirely. Business lobbies must prioritize market integration over national champion protection.

Second, accelerate trade diversification. The Mercosur agreement, despite implementation obstacles, demonstrates viable alternatives to concentrated US-China exposure. India, ASEAN, Middle Eastern partnerships, and Trans-Pacific bridges offer hedges that reduce vulnerability to single-partner coercion. European firms should aggressively pursue these markets rather than waiting for diplomatic resolution.

Third, invest in technology sovereignty. This requires accepting short-term inefficiencies to build long-term capabilities. European cloud infrastructure, AI training capacity, and semiconductor manufacturing must be priorities even if initial costs exceed hyperscaler alternatives. Strategic autonomy in digital domains is prerequisite to broader independence.

Fourth, coordinate defence industrial capacity. Fragmented procurement wastes resources that collective approaches would leverage. A true European defence industrial base requires political will to sacrifice national programmes for continent-wide specialization—painful but necessary to achieve competitive scale.

Fifth, deepen capital markets union. Cross-border investment flows remain stubbornly domestic because regulatory divergence imposes prohibitive complexity. Harmonizing insolvency, taxation, and securities regulation would unlock the savings pool necessary to finance strategic investments without external capital dependence.

The Existential Question

Carney’s Davos address posed the question that Europe must now answer: “What does it mean for middle powers to live the truth?” His answer demands naming reality rather than invoking fictional rules-based orders. It means applying consistent standards to allies and rivals rather than selective outrage. It means building institutions that function as described rather than waiting for restoration of comfortable fictions. And crucially, it means reducing vulnerabilities that enable coercion through economic strength at home and diversified relationships abroad.

For European business, “living the truth” means acknowledging that eight decades of comfortable assumptions have ended. Trump’s contempt for European partnership is not aberration but revelation—exposing structural dependencies that Beijing exploits with equal ruthlessness. The transatlantic relationship will not return to pre-Trump normalcy because that normalcy was itself an illusion sustained by American willingness to subsidize European free-riding on security, technology, and market access.

Global integration, for so long the watchword of European policymakers, now risks subordination. Carney’s warning applies equally to Brussels: “The danger is less a spectacular crash than a slow glide to mediocrity. Internal barriers erode growth quietly, as each new shock nudges us on to a slightly lower trajectory.” European sovereignty must be made real through the hard work of integration, diversification, and investment that political leaders have postponed for decades.

The effort may prove impossible. The interconnections run too deep, the political will too fragmented, the comfortable dependencies too entrenched. But as Carney concluded at Davos: “The old order is not coming back. We should not mourn it. From the fracture, we can build something better, stronger and more just.” For European business, the alternative to building that better future is accepting permanent subordination to powers that view the continent not as partner but as menu item. The choice—however wicked the challenge—has been made for Europe by forces beyond its control. The only remaining question is whether European leadership will respond with the urgency that survival demands.

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