Markets had every reason to rally after Donald Trump’s Davos speech on Wednesday. When a US president spends weeks hinting at military action against a NATO ally, then publicly rules out force, relief is the rational response.
The day before Trump spoke, the Greenland crisis wiped $1.2trn from stocks, the worst sell-off since October. Wednesday brought a surge when Trump declared he wouldn’t use force after all in his ambition to acquire the territory.
The Greenland drama had dominated headlines for days, with investors pinning their hopes on the ‘TACO trade’ (Trump Always Chickens Out): the expectation for the president to threaten, markets to panic and Trump to retreat. Financial media then dissected every word of his hour-plus rambling Davos address, full of economic boasts and thinly veiled threats against allies who displease him.
One day before Trump took the stage, Canadian prime minister Mark Carney delivered a 20-minute address that received a rare standing ovation but generated no market movement.
If you missed either speech, you can read Carney’s here and Trump’s here.
Both Trump and Carney agree on one fundamental point: the old rules-based international order is eroding. The question is how to navigate what follows. Trump offered raw power as the organising principle while Carney proposed “variable geometry” coalitions among middle powers.
Trump’s speech was transactional to the point of menace. “You can say yes and we will be very appreciative. Or you can say no and we will remember,” he told assembled leaders about his demand for Greenland.
The US president believes that power matters in a post-rules world and he’s not wrong about that. But his version makes power the only thing that matters, with no principles and no distinction between might and right.
For middle powers, Trump’s approach offers a binary choice: accept American primacy and hope for favourable terms, or resist and face retaliation. He responded to Carney by saying: “Canada gets a lot of freebies from us. They should be grateful, but they’re not.”
Carney built his speech around Czech dissident Václav Havel’s concept of ‘living within the lie’.
Middle powers such as Canada, South Korea, Australia and the Netherlands have been like Havel’s greengrocer, placing signs in windows praising an international order they privately knew was fiction. “It is time for companies and countries to take their signs down,” Carney declared.
This intellectual courage – refusing nostalgia and acknowledging that hegemons use economic integration as coercion – earned a rare standing ovation from the Davos crowd. Former Canadian ambassador Jeremy Kinsman called it “the most consequential speech on global affairs I have ever heard from a Canadian PM”.
Carney’s speech was full of powerful lines. The core of his argument came in this passage: “The middle powers must act together, because if we’re not at the table, we’re on the menu.
“But I’d also say that 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.
“But when we only negotiate bilaterally with a hegemon, we 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. In a world of great power rivalry, the countries in between have a choice – compete with each other for favour or to combine to create a third path with impact.
“We shouldn’t allow the rise of hard power to blind us to the fact that the power of legitimacy, integrity and rules will remain strong, if we choose to wield them together.”
The alternative he proposed was ‘variable geometry’, or issue-specific coalitions where different middle powers combine for different problems. Ukraine coalition here, critical minerals groupings there, bridging TPP and EU trade blocs elsewhere.
This isn’t just aspirational rhetoric: Canada has signed 12 trade and security deals in six months, doubled defence spending commitments, joined EU defence procurement and concluded strategic partnerships with China and Qatar. Carney outlined concrete actions, such as championing a bridge between the Trans-Pacific Partnership and European Union (creating a 1.5 billion person trading bloc), forming G7-anchored critical minerals buyers’ clubs and cooperating with like-minded democracies on AI governance.
Can this actually work? Can middle powers build coalitions that resist pressure when great powers can pick them off individually? Unknown. But Carney's answer is clear: trying this approach is better than accepting subordination and appeasement historically fails anyway.
Trump's rambling, threatening speech rallied markets because it contained immediate threat followed by immediate retreat. He attacked an unnamed Swiss leader who “rubbed me the wrong way”, called Federal Reserve chair Jerome Powell “terrible” and praised his own achievements for 30 minutes before mentioning Greenland.
Carney’s intellectually coherent speech, in contrast, rallied leaders because it offered a framework for navigating the rupture.
We have to hope the right people heard what Carney said. The leaders of middle powers face the same subordination trap Canada does. If variable geometry coalitions can gain traction, it nudges us towards a better future than the one Trump proposes. The standing ovation suggests appetite exists.
Davos 2026 showed two possible futures. One where raw power determines outcomes and middle powers accept subordination or face retaliation. Another where those countries build coalitions, share sovereignty costs and resist coercion together.
Carney’s greatest contribution was refusing to pretend the old order still functions. “Nostalgia is not a strategy,” he stated.
Taking down the sign in the window, admitting what everyone privately knows, is the prerequisite for building anything better. Will variable geometry succeed? Long odds. Hegemons have power, resources and the ability to divide opposition. But the alternative leads nowhere good.
Middle powers should resist even if success isn’t guaranteed, because appeasement definitely fails. That's the message markets ignored but history might remember.
Gary Jackson is head of editorial at FE fundinfo. The views expressed above are his own and should not be taken as investment advice.