Global trade faces pivotal moment as geopolitics, tariffs challenge postwar order

The past six years have delivered a series of shocks to the machinery of global commerce that few economists expected to survive intact. A pandemic that shuttered factories across continents. Two wars—one in Ukraine, another in the Middle East—that severed supply lines for energy, food, and fertilizer. And the return of a US president determined to dismantle the postwar trade architecture itself. Yet somehow, world trade has not collapsed. It has merely fractured, reorganized, and learned to work around the damage.

Last year, global goods trade volumes rose 4.6 percent, according to the World Trade Organization's annual report. Services trade grew even faster, at 5.3 percent. The engine of this growth was artificial intelligence. Demand for the chips, semiconductors, and advanced technology underlying the AI buildout lifted trade figures across the board. But Robert Staiger, the WTO's chief economist, offered a crucial caveat: that AI boom may be concealing something darker underneath. "Strong AI exports may be masking some of the drop in world trade that might otherwise be occurring," he said. The numbers bear this out. AI-related goods account for roughly one-sixth of all global trade but nearly half of all trade growth. Asian countries have captured most of this windfall. Africa, Latin America, the Middle East, and much of Europe have barely registered in the AI trade at all.

The geopolitical upheavals have redrawn the map of who trades with whom. When Russia invaded Ukraine in February 2022, the European Union was importing 37 percent of its natural gas from Russian pipelines. Today that figure stands at around 10 percent. The EU has pivoted sharply toward liquefied natural gas from the United States, Norway, Australia, and Kazakhstan. Russian oil and coal imports have become negligible. Russia found new buyers—China and India, primarily—willing to purchase its oil at steep discounts to global prices. Camille Reverdy, an analyst at the Brussels think tank Bruegel, sees little chance the EU will reverse course once the war ends. "If the alternatives become reliable sources, I don't see it coming back," she said.

When Iran effectively closed the Strait of Hormuz in late February, one of the world's most critical energy chokepoints vanished from the map. Saudi Arabia and the United Arab Emirates rerouted some oil through alternative pipelines. The International Energy Agency documented how the world compensated: increased production from the United States, Kazakhstan, Brazil, and Venezuela, plus roughly 300 million barrels drawn from national strategic reserves. Yet Brent crude has remained elevated, trading above $100 for much of the conflict, and analysts are warning of dangerously tight supplies heading into the fall and winter months.

Trump's tariffs have accelerated a broader decoupling from China. US imports from China fell by roughly 28 percent last year, according to the Peterson Institute for International Economics. That trade did not vanish—it redirected. American imports from the rest of the world climbed by nearly 10 percent, much of it flowing from Vietnam, Taiwan, and Mexico as companies scrambled to find suppliers outside the tariff zone. Globally, about 72 percent of goods are still traded under the WTO's core rules, down from roughly 80 percent in 2022. The Geneva-based agency has been sidelined in favor of country-by-country negotiations and bilateral exemptions that break the WTO's foundational principle of equal treatment.

What remains unclear is whether the world is experiencing a temporary shock or witnessing the end of the postwar trading order itself. Globalization, measured as the growth of trade relative to economic output, has stalled since around 2015. It has not reversed—trade still grows, just no faster than the global economy itself. Thomas Sampson, an associate professor at the London School of Economics, frames the question precisely: "The world is certainly not becoming more globalized. But it's still an open question whether we're actually at deglobalization or just shifting around who we trade with."

The stakes of that question are enormous. The WTO has modeled several futures. If the organization were dismantled and replaced only by a patchwork of bilateral free-trade deals, global GDP could fall by as much as 7 percent by 2050, with the smallest and poorest economies suffering the most severe damage. If geopolitical fragmentation deepens—a world divided into trading blocs—the hit would be roughly 5 percent. But if multilateral rules were reinforced and strengthened, global GDP could rise by about 3 percent. Experts disagree on which path the world will take. Some envision Trump's approach—a "law of the jungle" system of country-specific tariffs—continuing even after he leaves office. Others, including Reverdy, believe the EU will push for a reformed WTO that preserves the multilateral framework. What is certain is that trust in the United States as a reliable trading partner has eroded. Thomas Sampson warned that restoring that confidence could take many years, even under a different administration. The postwar consensus that held for eight decades has fractured. What replaces it remains to be written.