What’s more, the scope of these restrictions has expanded from traditional sectors such as metals and agriculture to strategic areas, such as vehicles and semiconductors.

The shift towards more local, unilateral and bloc-based trade has led to increasing use of trade restrictions. For example, the number of interventions restricting goods trade jumped from around 200 in 2009 to nearly 12,000 in 2024.

Protectionism, however, is assuming new forms. For example, governments are doling out ‘green’ subsidies to encourage reshoring in key industries and reduce reliance on imported technologies and inputs. Recent examples include the Inflation Reduction Act in the US and the European Green Deal. Environment-related measures in trade policy reviews have almost doubled over the past decade, constituting a new wave of ‘green protectionism’.

Naturally, global trade volume growth has slumped in recent years, plunging from an average of 5.8% year-on-year in the early 2000s to around 1% in recent years.

Governments have favoured regional or bilateral, rather than multilateral, trade agreements since the 1990s. Intra-regional trade shares have continued to rise, most notably in emerging and developing Asia, where regional trade is up from around 14% of total trade in the late 1990s to close to 25%.

The World Trade Organization (WTO) expects a rebound in global trade growth in 2024 and 2025 following a slowdown in 2023. But it is concerned about the risks to trade linked to geopolitical tensions and governments’ increasing focus on national security, supply chain resilience and support for domestic industries.

Trade patterns appear to be splintering along geopolitical lines. For example, the WTO found that trade flows within blocs of geopolitically aligned countries have grown 4% faster than intra-trade blocs since the onset of the Russia-Ukraine war. It also found that bilateral trade between the US and China grew 30% less than their trade with the rest of the world since 2019.

Meanwhile, geopolitical tensions are upending shipping routes, distances and transit times – posing risks to maritime trade, shipping costs and global supply chains. Since the Red Sea attacks that began in December 2023, shipping has diverted to longer routes via the Cape of Good Hope. For now, the associated delays appear markedly limited than during the pandemic: it’s been estimated that higher freight costs could lead global consumer prices to increase by 0.6% and shave 0.06% off global real GDP by the end of 2025.

Trade tensions between China and the US are back in focus. The Biden administration has fundamentally maintained the import tariffs on Chinese goods that were first implemented in 2018, extending a few and adding some technology-based restrictions.

However, trade flows between these two economies are not collapsing, but are rearranging. They are circumventing higher tariffs via ‘connector’ countries that have emerged, in effect restructuring global supply chains. Select countries including Mexico and Vietnam have become the strategic connectors, capturing market share of both Chinese exports and US imports.

Other means of tariff management are starting to gain popularity, including the movement of production lines to host countries that enjoy better terms (essentially in the form of lower tariffs) with the ultimate export destination. Notable examples include Chinese car factories being set up in Mexico and Chinese battery factories in Hungary, such that trade barriers do not apply when the goods are sold in their final destinations – the US and EU.

Donald Trump has proposed aggressive tariffs, including a baseline 10% (possibly as high as 20%) global minimum tariff on all foreign-made goods, a 60% import tariff on Chinese goods and a 100% tariff on all imported cars.  

This clearly represents a significant threat to the current pattern of global trade, risks further trade wars, and may weigh on economic growth in 2025 and beyond.  

Estimates suggest that there would be a negligible impact on the UK economy and a limited impact on the EU (with Germany and auto manufacturers the most exposed). However, a sharp drop in Chinese growth would be likely. US tariffs would also encourage inflation and reduce the Fed’s appetite to cut interest rates.  

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