Europe: A rich, constrained node in the U.S.–China order. Xi Jinping’s decision in May 2026 to meet first with U.S. President Donald Trump and then with Russia’s Vladimir Putin neatly captures the world Europe now inhabits. It shows that the central axis of global politics runs through Beijing and Washington, with Moscow as a disruptive secondary partner and Europe mostly offstage. For centuries, the picture was different. Since 1492, global order had been organised around Europe and then its Western offshoots: European empires created a world economy centred on Atlantic trade, colonial extraction and European technology, and Western political and intellectual models. Britain’s 19th-century supremacy passed not to a non-Western power but to the U.S., another product of European civilisation, so the system stayed Western even as power crossed the Atlantic. The Cold War continued this pattern: the Soviet Union had its demographic and industrial core in Europe, and the continent was the key strategic theatre. After 1991, the U.S. briefly enjoyed unrivalled primacy, but its hegemony depended on advanced allies—above all the EU and Japan—whose combined economies kept the ‘West’ near half of global GDP and an even larger share of global capital markets.
That world is now fading. China has grown from about 4% of global GDP in 1990 to close to one-fifth today, while Asia may soon account for roughly half of world output. The EU’s share has slipped toward 14–16% and will likely drift lower as growth averages only about 1–1.5% a year against faster-growing Asian peers. The Union houses roughly 6% of global population and one-seventh of global output, but lacks the scale, military capacity and political cohesion to act as a truly independent actor. Defence spending has climbed toward or above 2% of GDP in many member states, adding perhaps 100-150 billion euros a year compared with pre-Ukraine levels, yet this mainly restores minimal deterrence under a U.S. nuclear and technological umbrella. At worst, Europe—including Russia—faces some form of vassalage to the U.S. and China. At best, it will be a large, rich, strategically constrained ‘civilian power’: influential via market size, capital and regulation, but importing security and unable to set global rules alone. In a system where Xi courts Trump and Putin as primary counterparts, the emerging order is U.S.– China-centred; Europe is an important but secondary node, perhaps even a prize to be competed over. Even with booms and possible busts, AI will only reinforce these trends.
To avoid strategic narcissism, European businesses and investors might consider these four practical implications:
Tilt towards strategic-autonomy beneficiaries: Europe’s effort to cut reliance on Russian energy, U.S. tech and Chinese manufacturing is mobilising hundreds of billions of euros for energy systems, defence, digital infrastructure and critical technologies. Focus on firms tied to grids, storage, renewables, defence platforms, cybersecurity, semiconductors, batteries and critical raw-material chains, but stay selective on execution and policy risk. In mining, geography matters as much as geology
Reduce single-bloc risk in portfolios: A richer but more fiscally and demographically stressed Western bloc raises the odds of heavier taxation, financial repression and abrupt regulatory shifts in euro- and dollar-area assets. Mitigate this by diversifying across jurisdictions and currencies, adding exposure to high-quality assets in non-aligned or hedging regions and building holdings of real assets—core infrastructure, prime real estate and commodity-linked positions—that can preserve value across inflation and currency regimes
Treat ‘owning Europe’ as a quality and cash-flow bet: With structural growth low and the EU’s share of global GDP edging down, broad European exposure is unlikely to be a strong growth proxy. Concentrate on firms with durable moats, global reach and pricing power—high-end industrials, capital-goods makers, luxury and branded consumer names, mission-critical software and services, and health-care and life-science innovators—while structurally underweighting commoditised manufacturing, generic energy and heavily constrained banks, except in clearly defined turnaround cases. Always beware of China’s impacts on manufacturing moats and assume long-term leakage of valuable intellectual property to Chinese rivals
Embed U.S.–China rivalry into every risk assessment: Export controls, tech bans, localisation mandates and subsidy races will remain structural features of the environment, however a Trump–Xi–Putin triangle evolves. For each position, map revenue, supply-chain, data and IP exposure to both blocs and adjust required returns accordingly, favouring businesses able to operate across spheres via local production in multiple jurisdictions, diversified end-markets and redundant supply chains, and treating ‘bloc-flexibility’ as a core risk factor alongside traditional quality and cash-flow metrics
