Trade is reshaping, not collapsing

Global trade did not break under the strain of tariffs, sanctions, war, and political panic. It kept moving. The shape changed, the routes changed, and in some sectors the cargo changed, but the system itself proved harder to kill than many forecasts assumed. UNCTAD said world trade reached a record $33 trillion in 2024, up 3.7 percent from 2023, even as governments piled on industrial policy and trade restrictions. The World Bank now describes trade as “changing, but not necessarily becoming weaker” after years of shocks that should have snapped a more brittle system (unctad.org) (blogs.worldbank.org). That resilience matters because the slowdown is real. Global trade is no longer racing ahead the way it did in the 1990s and early 2000s. The World Bank says average trade growth has fallen from about 6 percent in the 1990s to just under 3 percent in the 2020s, making this the slowest trade decade in forty years. But slower is not the same as smaller. What has weakened is the old model, where efficiency alone decided where production went. What replaced it is a messier logic built around redundancy, political risk, and the ability to switch suppliers fast (blogs.worldbank.org) (oecd.org). That is why the most useful word here is not deglobalization. It is rearrangement. McKinsey’s 2025 report on the “great trade rearrangement” argues that much of the pressure on US-China trade does not erase demand. It pushes firms to source the same goods through different countries, or to buy components from one place and assemble them in another. For 35 percent of US imports from China, McKinsey found alternative global supply is deep enough that switching is relatively easy. The hard part sits in a smaller but crucial slice of trade, including products like rare earth magnets, where China’s position is still hard to replace (mckinsey.com). The headline numbers on US-China trade make that shift look dramatic. The Office of the US Trade Representative says US goods imports from China fell to $308.4 billion in 2025, down 29.7 percent from 2024, while the bilateral goods deficit dropped 31.6 percent to $202.1 billion. But even that does not mean China vanished from American supply chains. A Federal Reserve note found US imports from China have fallen by less than official US data suggest, because some Chinese content now reaches the United States through third countries. Another Fed paper put it more bluntly: as the US derisks from China, other suppliers to the US are relying more on Chinese imports themselves (ustr.gov) (libertystreeteconomics.newyorkfed.org) (federalreserve.gov). That helps explain why nearshoring never became the whole story. UNCTAD says friendshoring and nearshoring actually reversed in 2024 as firms moved away from concentrating production in a few favored places and instead spread risk across more regions. India and Vietnam gained ground. Europe became a hinge point in McKinsey’s simulations because it can absorb more Chinese imports while also shipping more to the United States. Smaller economies matter more in this map than they did a decade ago, not because the giants disappeared, but because the giants now need more intermediaries (unctad.org) (mckinsey.com). Then AI arrived and changed the cargo. The WTO’s 2025 World Trade Report argues that AI is already altering how goods and services are produced, exchanged, and consumed, while cutting some trade costs and raising productivity. In practice, that has meant a surge in trade tied to semiconductors, servers, and data-center hardware. Taiwan’s exports hit an all-time high of $640 billion in 2025, driven by demand for advanced chips, servers, and other AI hardware. India’s smartphone exports also jumped, and in the second quarter of 2025 India overtook China as the top smartphone exporter to the United States, according to India’s Press Information Bureau (wto.org) (topics.amcham.com.tw) (pib.gov.in). This is the part many collapse stories miss. Trade is not being saved by a return to the old order. It is being held together by rerouting and by a new class of goods that countries are scrambling to make and move. The WTO warned in April 2025 that merchandise trade volume could still decline by 0.2 percent under then-current tariff conditions. Even so, the system kept creating new corridors for demand. The concrete detail is not a theory. It is a shipment: an AI server leaving Taiwan, packed with high-end chips, crossing the Pacific to a US data center while a smartphone assembled in India follows a different route to the same market (wto.org) (taipeitimes.com) (counterpointresearch.com).