[Global trade is not retreating. It is being rewired.]
The United States (US) Supreme Court’s decision to invalidate President Donald Trump’s sweeping tariffs under emergency powers has provided no certainty to global trade. If anything, it has deepened the ambiguity. The issues confronting global trade are no longer confined to the tariff rate Trump has pivoted to under Section 122, or to which statutory lever he might pull next.
At one level, they concern short-term uncertainty arising from Trump’s determination to retain tariffs both as an instrument of trade regulation and as a tool of geopolitical leverage. Responses to the Supreme Court’s ruling and to his use of Section 122 have been measured. Major trading powers are quietly reassessing prospective deals even as they acknowledge that America’s security umbrella remains central to the equation.
At another level, the issues reflect discernible geo-economic shifts affecting trade and firms alike. Markets are diversifying, regional trade agreements are deepening, economic ties are increasingly embedded in strategic autonomy frameworks, and trade flows are being reallocated in ways that may gradually erode US centrality. The momentum is towards Asia, Europe and the Global South. A surge in new free-trade agreements across continents signals a deliberate swing: supply chains are being rewired to manage geopolitical risk, with economic-security concerns increasingly shaping commercial choices. Firms need to keep a close watch.
Cautious, Layered Responses
When tariffs can be announced, struck down, replaced and raised within days, trade strategy turns into contingency planning.
In Brussels, ratification of the EU-US trade arrangement has been paused until there is greater clarity from Washington. Europe’s message is procedural but clear: rules matter, and policy unpredictability has real economic consequences. India has quietly deferred a planned trade delegation to Washington—an early sign that governments are reluctant to negotiate amid legal and policy uncertainty. Australia’s trade minister has publicly opposed the proposed 15% global tariff and suggested that Canberra may accelerate efforts to conclude a long-stalled free-trade agreement with the European Union.
Japan’s response has been layered. Opposition parties have denounced the new tariffs as “outrageous”, yet the government has pressed ahead with large investment commitments in the United States. This dual approach captures the prevailing mood: protest unpredictability, but hedge through investment. Japan has long been the largest source of foreign direct investment in the US, and recent multibillion-dollar energy and infrastructure projects suggest tariffs are being absorbed as a cost of strategic and economic security rather than a reason to withdraw.
South Korea’s ministry of economy and finance has indicated it will wait and watch. Deputy Prime Minister Koo Yun-cheol has said the government will assess industry-specific impacts and develop response plans while closely monitoring domestic and global financial markets. In Seoul, opposition parties are calling for a reassessment of the trade agreement. Trade accounts for roughly 85% of South Korea’s GDP, and exports to the United States have declined. Seoul is also negotiating security arrangements alongside trade concessions, aware that tariff tensions can affect alliance relations.
National-security considerations clearly shape decision-making across countries. South Korea’s tariff discussions are closely linked to defence consultations. Japan’s investment commitments coincide with alliance obligations. Australia is balancing strategic alignment with economic diversification. India is calibrating trade negotiations while strengthening Indo-Pacific partnerships and maintaining ties with Russia. China remains central to New Delhi’s strategic calculations.
For Europe, the push for strategic autonomy is becoming stronger even as it reassesses its security posture. For ASEAN countries, closer integration with China offers economic growth but increases dependency risks. For Brazil, commodity exports to China help cushion tariff shocks. Each is trying to balance access to major markets with exposure to geopolitical risk.
China-related risks are also being weighed carefully. Beijing has demonstrated a clear willingness to deploy trade as an instrument of geopolitical leverage. Its recent move against Japan—restricting exports to entities linked to military capability—underscores this approach.
Moving away from China is difficult given its central role in global supply chains. Yet new trade agreements indicate a gradual reassessment. Strategies such as “China+1” and friend-shoring are emerging as tools of strategic balance, even as countries pursue greater autonomy in an increasingly uncertain geopolitical environment.
“Tariffs are the noise. Realignment is the signal.”
Structural Shifts Under Way
The deeper changes in global trade are unmistakable. They are not driven by tariff uncertainty alone—or even by Trump’s policies—but by longer-term shifts that are now accelerating. The rules-based trading system has been evolving from the pre-Trump era through the pandemic and into the present. This is not deglobalisation. The world economy remains tightly connected, but supply chains and markets are being reorganised.
The United States still accounts for about 13.9% of global merchandise imports. But Europe accounts for 35.8% and Asia 31.7%. Nearly two-thirds of world imports now occur within or between Europe and Asia. The centre of gravity of global trade has shifted away from the transatlantic axis towards Eurasia, with Latin America becoming an increasingly important player.
In Asia, the most significant trend is regional integration. China’s trade with ASEAN exceeded $1 trillion in 2025, continuing to grow steadily. Trade with Indonesia also rose sharply. At the same time, China’s exports to the United States are declining, while exports to Asia, Africa and Latin America are rising. More than half of China’s exports now go to Asian markets alone.
A similar shift is visible in Latin America. Trade between Brazil and China reached a record $171 billion in 2025—more than double Brazil’s trade with the United States. China now accounts for a large share of Brazil’s exports and imports. This trend predates recent tariff developments but has accelerated as uncertainty around US policy has grown. For Brasilia, the logic is straightforward: if access to one market becomes unstable, demand from another can fill the gap.
Trade Frameworks Are Reordering the System
Free-trade agreements and bilateral deals are becoming key tools of this global realignment. Many of the new arrangements no longer centre the United States. Since the Trump years, Washington has largely stayed outside major new trade frameworks. Instead, agreements such as the China-backed Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) are gaining influence. China’s trade with Belt and Road partners alone reached $3.39 trillion—about 52% of its total trade.
Other regions are moving in the same direction. The European Union concluded a political agreement with Mercosur in late 2024 and moved towards ratification in 2025. It also finalised negotiations with India in January 2026 and deepened ties with Vietnam. The EU-Vietnam agreement generated nearly $300 billion in trade within five years. Meanwhile, China and ASEAN upgraded their trade pact in 2025 to include digital trade, standards cooperation and supply-chain coordination.
The spread of such agreements reflects a search for stable, rules-based commerce beyond Washington’s orbit. They do not simply exclude the United States; they reduce its central role. Over time, they are reshaping global competition. Recent US tariff changes have widened the advantage of developed economies while deepening disadvantages for developing countries, influencing sourcing decisions and reinforcing patterns of specialisation.
“Trade is not retreating—it is relocating.”
Changes within US import patterns reflect this shift. China’s share of US imports has fallen sharply since 2020, while Mexico, Vietnam and Taiwan have gained ground. Yet diversification is concentrated among major suppliers rather than widely dispersed. The system is evolving, but largely within established trade corridors.
Tariff data also challenge domestic political narratives. In 2025, most of the burden fell on American importers and consumers through higher prices. Average tariffs translated into noticeable increases in import costs, while the US trade deficit reached record levels. Although the deficit with China narrowed, deficits with Mexico and Vietnam rose significantly.
The World Trade Organisation describes this broader process as “re-globalisation”: trade flows being reorganised by geography, technology, industrial policy and climate priorities rather than shrinking overall. However, the WTO warns that rising trade costs and uncertainty hit countries without strong production networks the hardest. For now, the evidence is clear: trade is not retreating—it is relocating.
At the same time, the global trade system is increasingly focused on resilience, diversification and geopolitical alignment. The WTO still anchors most commerce—its rules cover about three-quarters of world trade—but unilateral tariff actions by the United States are putting strain on that framework.
Uncertainty over US policy now affects nearly every major trade decision. Persistent volatility acts like a hidden tax on international commerce, raising costs, increasing risk and reducing gains even when tariff rates themselves appear manageable. Repeated shocks also weaken trust in long-term commitments, making countries more cautious and pushing them towards regional arrangements as protection against sudden policy shifts.
Beyond the Tariff Cycle
The longer this unpredictability continues, the more permanent the changes to the global trade system will become. New alliances are already taking shape. Regional trade agreements will deepen, and supply chains will increasingly shift away from traditional American-centred routes. Even if stability eventually returns, the world is unlikely to go back to the old model. The underlying shifts reflect deeper changes in geopolitical power.
For companies, this environment is driving a move away from global supply chains built purely for efficiency towards systems designed for resilience. Firms are reducing dependence on a single low-cost manufacturing hub and instead spreading production across countries seen as politically reliable or part of stable trade blocs. Geopolitics now matters as much as labour costs.
Over time, this will create a more fragmented world economy organised into regional production networks. Trade within these blocs will intensify, with components moving along trusted routes and investment flowing towards major consumer markets. This does not signal the end of globalisation. Rather, it marks its transformation into a system where risk is priced in—and where policy stability itself becomes a competitive advantage.
