Global Trade Faces Unprecedented Disruption From Wars, Tariffs and Geopolitical Fragmentation

The world's trading system is navigating its most turbulent stretch since the end of World War II. In the span of just a few years, a pandemic shuttered factories across continents, two major wars disrupted supplies of energy and food, and a return to protectionist tariffs has fractured the rules that governed commerce for eight decades. Robert Staiger, the chief economist at the World Trade Organization, describes what is happening as "the most serious and sustained disruptions since the trading system was created 80 years ago." The tariffs alone have pushed US duties to levels not seen in decades, forcing companies to scramble for new suppliers and new markets.

Yet the global trading system has not collapsed. Last year, goods trade volumes rose 4.6 percent, and services trade grew by 5.3 percent. China remained the world's largest exporter of goods; the United States imported more than any other nation; the European Union held the second position in both categories. The resilience is real, but it is also misleading. Staiger notes that strong demand for artificial intelligence technology and the semiconductors that power it may be "masking some of the drop in world trade that might otherwise be occurring." AI-related goods account for roughly one-sixth of all goods trade globally, yet they represent nearly half of all trade growth. The WTO's March outlook showed that Asian countries have captured most of this boom, while Africa, Latin America, the Middle East, and much of Europe have barely participated.

The pandemic accelerated a shift away from China as the world's manufacturing center, but the wars have reshaped energy markets in ways that may prove permanent. When Russia invaded Ukraine in February 2022, the European Union was importing 37 percent of its natural gas from Russian pipelines. By late 2024, that figure had fallen to around 10 percent. The EU has replaced Russian pipeline gas with liquefied natural gas from the United States, Norway, Australia, and Kazakhstan. Oil and coal imports from Russia have become negligible. Russia found new buyers—China and India purchased its oil at steep discounts—but analysts doubt the EU will return to Russian energy once the war ends. Camille Reverdy, a fellow at the Brussels think tank Bruegel, put it plainly: "If the alternatives become reliable sources, I don't see it coming back."

When conflict erupted in the Middle East in late February, Iran effectively closed the Strait of Hormuz, one of the world's most critical chokepoints for oil shipments. Saudi Arabia and the United Arab Emirates rerouted some oil through alternative pipelines. The International Energy Agency reported that the world compensated for the missing barrels by increasing production in the United States, Kazakhstan, Brazil, and Venezuela. Several nations also released roughly 300 million barrels from their strategic reserves. Nearly seven months into the conflict, Brent crude has traded above $100 per barrel for much of the war, and analysts are warning of dangerously tight supplies heading into fall and winter.

President Trump's tariff strategy has added another layer of disruption. US imports from China fell by around 28 percent last year, according to the Peterson Institute for International Economics. Imports from the rest of the world climbed by nearly 10 percent, much of it from Vietnam, Taiwan, and Mexico as companies rerouted supply chains away from China. Trump has also broken the WTO's core principle of equal treatment by setting country-specific duties and negotiating individual exemptions. About 72 percent of global goods are still traded under the WTO's rules, down from roughly 80 percent in 2022.

The larger question now is whether the WTO itself will survive. Trump has attacked the Geneva-based institution, and experts have begun sketching alternatives: continuing his country-by-country tariff approach, a web of bilateral and regional trade deals, or a coalition of major trading blocs that could operate on WTO-style rules at a scale the US and China could not ignore. Thomas Sampson, an associate professor at the London School of Economics, warned that Trump's approach—what he calls a "law of the jungle"—would harm smaller countries, who have a "bigger voice" under the current system. He also noted that "trust in the US as a trading partner has collapsed," and it could take years for confidence to return even under a different administration.

The WTO has modeled the economic consequences of different futures. If trade fragments further along geopolitical lines, global GDP could shrink by about 5 percent by 2050. In a scenario where the WTO disappears and only scattered free-trade deals remain, GDP could fall closer to 7 percent, with the smallest and poorest economies suffering the most. Reinforcing multilateral rules, by contrast, could raise global GDP by roughly 3 percent. For now, globalization has stalled—since around 2015, world trade has grown only as fast as the global economy—but it has not reversed. Whether the current disruptions mark the end of an interconnected world, or simply a reshuffling of trading partners, remains an open question.