Trade diversification in turbulent times is on the minds of economic policymakers, given recent shifts in trading patterns as a response to elevated geopolitical and economic tensions. Indeed, this was among the most widely discussed themes at the 2026 Annual Meetings of the International Monetary Fund and World Bank in Bangkok, Thailand. The importance of maintaining open trade channels was emphasized in the October World Economic Outlook and touched upon in panel discussions and informal hallway conversations. But while world trade has indeed shown signs of fractures, the term “deglobalization”—as used by some observers—is too over-reaching and simplistic to fully capture the complexity of changes going on in the global economy. A “rewiring of globalization” is a more appropriate way to describe the current situation.
A rewiring of globalization essentially means a reconfiguration of global supply chains to better reflect emerging national strategic priorities in response to geopolitically driven fragmentation of the world economy. This has given more weight to strengthening economic resilience against possible supply disruptions, compared with previous attention to making efficiency gains. For example, the emphasis on “just in time” (to economize the cost of carrying inventory) has been changed to “just in case” (maintaining adequate inventory to manage risks of supply disruption). Moreover, changes in the composition of products and services being traded has also altered the pattern of trade.
Changes in composition of trade
Contrary to perceptions of a slowdown in world trade due to increased protectionism, 2025 saw a big jump in global trade as a percentage of gross domestic product (GDP), rising to more than 68 percent from around 60 percent in recent years. The increase reflects changes in global supply chains—both in terms of the composition of traded goods and services as well as trading relationships among countries—boosting world trade. That’s hardly deglobalization.
Driving the recent growth in trade has been artificial intelligence (AI) capital expenditures—on related goods and services, including hardware and software. Specifically, AI-related goods account for 15 percent of merchandise trade but have contributed 42 percent of trade growth in the first three quarters of this year. Trade in critical minerals necessary to produce many AI-related hardware components such as semiconductors has increased dramatically, reaching a volume of $2.5 trillion—or about 10 percent of total merchandise trade.
In particular, cross-border trade or flow of data had become the lifeblood of world trade in the digital era. Digital technology has fostered a strong growth of the services trade, which has increased by 4.7 percent a year, outpacing goods trade growing at 2.2 percent. This has raised the share of services trade to a high of 25 percent of total world trade.
Changes in patterns of trade and investment
At the same time, world trade and foreign direct investment (FDI) have been fragmented along geopolitical lines as a result of heightened global tension. Quarterly trade volumes have grown about 2.5 percent more slowly between geopolitically distant countries than between those more geopolitically aligned. Similarly, the share of investments among geopolitically distant countries has dropped from 23 percent to 13 percent between 2013 to 2022. By contrast, investment flows among geopolitically close advanced countries increased from 35 percent to 45 percent. This is the concept of “friendshoring” being put into practice.
This practice has costs for the developing world. The volume of FDI rose by 14 percent to $1.6 trillion in 2025, with the flows to developed countries increasing by 43 percent year over year while declining by 2 percent to developing countries. Low-income countries were hit hardest.
Changes in the positions of US and China
Meanwhile, the United States’ share of world trade has declined slightly in the past decade. Specifically, US imports as a share of world imports have declined from a high of 14 percent in 2015 to about 13 percent, while its export share has fallen from 9 percent to about 8.5 percent. Basically, other countries besides the US have sought to trade more with each other, especially in order to adjust to unpredictable tariffs from Washington, by concluding regional and plurilateral trade agreements. Indeed, the number of regional trade agreements notified to the World Trade Organization has risen from 350 in 2022 to 580.
By contrast, China has lifted its share of world trade dramatically from 4.4 percent in 2001 to 15 percent in 2020—hovering around that level since then. According to the Organisation for Economic Co-operation and Development, China’s backward-looking integration in the trade of values added—measuring the share of foreign content in China’s exports—has decreased from 19.4 percent in 2010 to 17 percent in 2022, well below the Group of Twenty (G20) average of 19.8 percent. Its forward-looking integration—reflecting the share of domestic value added driven by foreign demand—has also declined from 18.6 percent to 15.5 percent during the same period. In short, these developments suggest that the “Made in China 2025” strategic initiative launched in 2015 has largely achieved its objective of raising China’s domestic value added in its exports while making China’s economy less influenced by foreign demand.
The development described above has led some observers to coin the term “China Shock 2.0” to describe the noticeable increase in China’s trade surplus vis-a-vis the rest of the world—basically a result of the country’s neo-mercantilism. This is not an equitable and sustainable approach to developing world trade.
South-South trade
A bright spot has been the stronger growth in trade among developing countries (or South-South trade)—increasing by 8 percent to 9 percent annually, much faster than overall global trade. This has reached a volume of $7.2 trillion, accounting for 57 percent of goods exports from developing countries. This means developing countries are trading more with one another than with the developed world.
The rising importance of critical minerals in the digital/AI and defense sectors has supported exporters of those commodities among emerging markets and developing countries. In particular, Southeast Asia has emerged as a manufacturing and trade hub in both critical minerals and AI-related products, mainly semiconductors—helping to sustain growth not only regionally but globally. In fact, Asia as a whole has been estimated to contribute around 68 percent of global GDP expansion in 2026.
In short, a reconfiguration—or rewiring—of trade and investment has helped the world adjust to geoeconomic fragmentation. But it has also produced winners and losers. Countries geopolitically close to major powers and participating in the AI and critical mineral supply chains tend to fare better. Those without such attributes have been put under pressure. Worst hit have been low-income countries, which have suffered from sluggish trade, declines in FDI flows, and cutbacks in official development aid.
Hung Tran is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and senior fellow at the Policy Center for the New South. He is a former executive managing director at the Institute of International Finance and former deputy director at the International Monetary Fund.
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Image: A cargo ship cruises towards the North port in Port Klang, on the outskirts of Kuala Lumpur, on January 17, 2025. (Photo by Hari Anggara/NurPhoto)