World trade is in transition, with the end of the 'global village' era and stagnation in its share of global GDP. Geopolitical upheavals, from Ukraine to the Middle East, are driving fragmentation, while 'friend-shoring' redirects trade based on alliances. Connector countries are rising, and new trade routes are emerging, but major powers like the U.S. and China remain deeply interdependent. Globalization is reorganizing to adapt to rising protectionism.
Regionalization of flows reinforced by geopolitical rivalries
Globalization has suffered many shocks over the last decade. Trade barriers introduced by leaders such as Donald Trump have broken the taboo on protectionism, while armed conflicts such as the wars in Ukraine and the Middle East are disrupting traditional trade routes. The prospect of Trump's return to the White House threatens to reignite a full-scale trade war, particularly with China, with the risk of tariffs of up to 60% on all imported goods.
At the same time, initiatives such as the Inflation Reduction Act and the Chips Act, introduced by the Biden administration, aim to repatriate strategic industries to limit US dependence on China, while maintaining the tariffs introduced in 2018. This is a sign of a general trend among the major powers to reduce their economic interdependence, fueling the fragmentation of global value chains.
Simultaneously, China, considered a key player in global supply chains, is also seeing its trade with the United States slow, with monthly trade flows between the two giants falling by 20% since their peak in 2021.
Beyond Sino-American relations alone, trade between geopolitical blocs (the western-aligned bloc on one side, countries that did not condemn Russia’s invasion of Ukraine on the other) is shrinking significantly - much more sharply than ‘intra-bloc’ trade (see graph).
World trade that bends but does not break
Despite these upheavals, world trade is not collapsing: it is rearranging. The rise of the ‘connector countries’, third countries that act as transmission belts between the major powers, is a telling sign. Countries such as Vietnam and Mexico are becoming strategic relays, capturing market share in Sino-American supply chains.
In the face of European sanctions, Russia has used new trade routes such as the Northern Sea Route to redirect its oil exports to China. Geopolitical tensions are thus changing not only the destination of products but also the infrastructures used to transport them.
This adaptability of world trade can be seen in the evolution of trade routes. Historic routes such as the Suez Canal are being replaced by alternative routes that are less affected by regional conflicts. Rail routes built under China's ‘Belt and Road’ initiative, which aims to link several Chinese cities with European economies, is another example. These railroads have also seen an explosion in traffic following the Houthi attacks in the Red Sea, with China-EU rail freight volumes increasing by 66% in the first half of 2024 after two years of decline.
US-China: decoupling can only go so far
Despite the push for decoupling, the world's economies remain highly interdependent. The United States and China have internal structural imbalances that can only be resolved through foreign trade.
China, which remains dependent on exports to offset insufficient domestic demand, retains monopoly positions in certain critical sectors such as shipbuilding and container production.
The United States, despite ‘friend-shoring’ initiatives aimed at strengthening trade relations with allied countries, is still dependent on imports, particularly of Chinese goods, to satisfy rising consumption.
However, the resilience of world trade will be put to the test in the years ahead. An intensification of trade wars, as promised by some US presidential candidates, coupled with a continued escalation of global conflicts could lead to major disruptions in global supply chains, particularly through strategic gateways such as the Strait of Hormuz.
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