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Competitiveness
Resilience
From resilience to realignment: How global trade is re-wiring without the US
The fragmentation of the global trade system is leading to the rise of new trade coalitions and corridors, said economists in a joint IMD-Hinrich Foundation webinar. ...
The fragmentation of the global trade system is leading to the rise of new trade coalitions and corridors, said economists in a joint IMD-Hinrich Foundation webinar.
The train headed towards the El Dorado of sustainable trade has screeched to a halt, and every economy is out for itself to survive what feels like potential wreckage.
Singapore is doubling down on openness. Korea is using different industrial policies to secure the basis for the self-sufficiency it has decided it needs, and the US, Australia, and the UK — three Anglo-Saxon rules-based economies — are pursuing divergent policies, reflecting substantial institutional fractures.
It’s a tall task to assess how well an economy is adapting to today’s quickly evolving and unpredictable trade environment, but this forms the basis of the Hinrich-IMD Sustainable Trade Index (STI), which recently released its 2025 edition.
For the past three decades, global trade has rested on the pillars of openness, efficiency, and multilateralism. Those foundations are now crumbling. As a result, supply chains are being reengineered, and trade agreements are becoming more exclusive.
The STI’s 2025 analysis finds that global economies are moving from an era of resilience to one of realignment. Resilience focused on redundancy, that is, multiple suppliers and diversified supply routes, whereas realignment means repositioning, that is, picking up partners more opportunistically, building domestic capacity, and making more strategic choices in how economies and companies invest in different segments of what they trade. Otherwise, for the foreseeable future, it’s accepting fragmentation.
As economies try to realign, they face three overriding questions:
- How much efficiency are we willing to sacrifice to gain control over critical resources and technologies?
- Can we, as a country, continue to benefit from open markets without eroding the social trust and equity that make trade politically viable?
- Can global environmental goals coexist with our national growth aspirations, especially in developing economies?
During a webinar convened to mark the Index’s 2025 release, I asked experts from IMD and the Hinrich Foundation three questions to try to understand the transition facing sustainable trade and whether we are on a losing streak.
It turns out that the US only accounts for 15% of world trade, and that the countries that account for the other 85% like the world trade system just as it is...
Question 1: What have we gained and what have we lost?
Despite the wide imposition of US tariffs, there’s a vast difference between the announced tariff rates and those that came into effect.
“The world trade game didn’t simply end when the US walked off the pitch; the protectionism of the US – meaning its disregard for any trade agreement ever made – didn’t spread,” said Richard Baldwin, Professor of International Economics at IMD.
“It turns out that the US only accounts for 15% of world trade, and that the countries that account for the other 85% like the world trade system just as it is (more or less). Apart from China, almost nobody has retaliated against the US.”
“Some newspapers forecasted there would be no trade between China and the US, but when you look at what actually happened (the numbers), it’s quite different,” he added.
That said, we could be at the start of what might become an extended denouement, cautioned Deborah Elms, Head of Trade Policy at the Hinrich Foundation.
“Although the US has clearly decided how to deal with trade partners, it is reassuring that no one else has followed in the US’s wake. Nor have we seen significant retaliation against the newly imposed tariffs. We also haven’t seen lots of other countries imposing trade restrictions against their partners.” Many questions, however, remain unanswered. For instance, how much of the trade – and not just Chinese trade – that used to go to the US will be sent to new markets? The answer could well put additional pressure on countries that haven’t experienced such inbound trade in goods.
“They may respond by putting up trade barriers of one kind or another,” added Elms. “Therefore, as we go forward, we may find more to worry about than now.”
What, though, if we are in the middle of something akin to an England rugby game, meaning anything might happen in the last five minutes, asked Simon J Evenett, Professor of Geopolitics and Strategy at IMD.
“The US effective tariff rates are now much lower than levels threatened in April. According to the Budget Lab at Yale, in early April, we were looking at effective rates of 28% but now that’s down to 17.9%, which reduces the amount of damage done by about 60%,” he said.
“All this hasn’t worked out as badly as people feared, and that is partly due to a deliberate decision from the US administration to allow foreign countries to buy down their tariff rates by making all sorts of other problems,” added Evenett.
“Is the world coalescing around a new global consensus that no longer revolves around the United States?”
Question 2: What strategies are being deployed by economies?
The world moves on without the US in trade
Baldwin argued that re-globalization without the US is already unfolding.
“The US is closing itself off. The share of US world exports is below where it was when Trump took office, as is its share of world imports, which is less surprising,” Baldwin said.
“The volume of ‘rest of the world exports to the rest of the world’ is rising, whereas ‘US exports to the rest of the world’ are falling.”
This raises the question: Is the world coalescing around a new global consensus that no longer revolves around the United States?
New coalitions with fresh ideas
“I don’t think trade is ending. I don’t think we’re done being interconnected with one another. But I do think the format is going to be tested in ways that we haven’t seen in a long time,” said Elms.
“It’s heartening to think that initiatives of groups of countries coming together like FIT-P have seized an opportunity in a fragmented system, wondering: ‘How can we make lemonade out of this’?”
She says that it’s far too early to know what the lemonade might look like, though.
“Clearly, a system that is globally open is better for export-oriented economies, but in a world now lacking one clear leader, maybe we have to have different coalitions of the willing.”
Emerging trade corridors will gain prominence
“I am heartened by the increasing discussion of key corridors,” said Evenett.
“Many of them seek to link Asia to the Gulf and then to Africa. I think there will be a parallel discussion on the development of trade by ports, transport companies, and other logistic providers and associated governments as they try to ease trade in these directions and especially from Africa over to Asia, as this could draw in billions of people.”
The good news about disrupting the global trading system is that it gives rise to certain conversations that might not have been possible before.
Question 3: What policy dilemmas lie ahead?
Openness versus security
“Some people might ask, ‘Was this shock necessary?’ to which I would answer, ‘For who?’” said Evenett.
He notes that many people in the US perceive China as a threat, but questions whether this sentiment is globally shared.
He adds that countries should ascertain their own long-term development trajectories, asking, “How does openness contribute towards our trajectory in an era where the bigger players are much more worried about security?”
Changing the political narrative scapegoating trade
If you view the tariff fiasco as the scapegoat for a domestic spat, it might just seem less scary, said Baldwin.
“Let’s ask: what does Donald Trump really want from this trade war thing?” he said
“He’s channeled a sense of middle-class victimhood and blamed foreigners. So, the tariffs are a flare that lights up, just so his base knows that finally someone in power is standing up for them.”
The problem is, says Baldwin, that the sparks from that flare landed on their houses and are burning them down.
“Trump has become worried about tariffs hurting his base, which is one reason I don’t think they are going to go up very high. They might even be removed and certainly not pursued so aggressively,” he explained.
“He’ll have to switch to something else to signal that he’s standing up for the missing middle class.”
Finding a way back to dialogue over the use of force
While disruptions can be challenging, they also present opportunities for constructive dialogue and collaboration.
“The good news about disrupting the global trading system is that it gives rise to certain conversations that might not have been possible before. Once problematic ideas now become more interesting to a wider spectrum of players,” said Elms.
“Although there is a cascading protection that happens when trade gets deflected, which leads to an import surge, leading then to dumping duties and so on, domino liberalization is also a reality,” said Baldwin.
“The number of free trade agreements that have been lingering for years and then signed in the past six months is truly amazing. The loss of the American market is making people excited about signing trade agreements that were very difficult to sign before – UK-India or Brazil-China, for example,” he added.
“Arguably, global trade had ever-deepening fissures that needed fixing anyway,” says Chuin Wei Yap, Program Director for Trade Research at the Hinrich Foundation.
He cautions that the growing use of forceful tactics poses a new degree of challenge, potentially eclipsing the risks associated with the loss of free trade. Consequently, adaptability remains essential to preserve the integrity of the system, a part of which is negotiating the trade-offs that the 2025 STI report centers on.
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