John Ferguson and Melanie Noronha
The next chapter of globalisation has begun: What we might call new globalisation. As Donald Trump was being sworn in, Economist Impact published the fifth edition of Trade in Transition, warning that global trade was heading for its most turbulent spell since the 1930s.
In the days and weeks following the inauguration, the predictions made in the report have materialised. President Trump unleashed a fresh wave of tariffs, but this time his targets were prepared. China, Canada and Mexico hit back with counter-measures spanning tariffs, export controls and legal action. This tit-for-tat retaliation threatens deeper fragmentation, reminiscent of the trade wars a century ago.
The rules-based system is being undermined, giving way to mercantilist confrontation. Trade policy is becoming increasingly transactional, with rules – and exemptions – to match. For businesses, this creates a climate of uncertainty, leading to poor decision-making, delayed investment and, ultimately, weaker economic outcomes. But far from retreating, firms are adapting; deploying new strategies to navigate this fragmented world.
Fractured supply chains
Businesses began rethinking strategies in anticipation of Trump’s victory in November. In response to his proposed measures, 40% of supply-chain executives we surveyed globally are planning to increase US sourcing, and 33% are cutting costs to offset higher tariffs. Switching to US suppliers may ensure access to the world’s largest market, but also means that businesses will have to forego more cost-effective options in other parts of the world.
Gains will need to be made elsewhere. Amid intensifying geopolitical tensions, non-aligned countries like Vietnam, the UAE and Mexico are increasingly seen as supply-chain safe havens. Some 71% of the executives view these nations as politically neutral trading hubs, shielding them from geopolitical risk. But this strategy is not without its challenges.
A lack of regulatory harmonisation limits the ability to scale up trade with these partners. India’s pharmaceutical industry, for example, struggles to standardize regulations as it serves the EU, African markets and the US, each with differing quality controls, clinical trial requirements and approval processes. Such challenges will test the ability to stay neutral, pushing countries to align with one side or another.
Businesses have embraced “friendshoring” – sourcing from politically aligned nations – as a geopolitical risk-mitigation strategy, but it is also facing setbacks. President Joe Biden blocked a US Steel takeover by Japan’s Nippon Steel (an attempt by an ally to increase their investment in the US), while Trump has slapped tariffs on steel and aluminium imports, including from allies. Determining which nations qualify as allies (and how long they will remain so) will become an increasingly complex calculation for supply-chain planners.
The great supply-chain shuffle
With the trade landscape in a constant state of flux, businesses are continually reconfiguring supply chains. Despite pressure to bring production closer to home, companies are committed to maintaining vast global networks. Almost 46% are diversifying geographically to enter new markets and hedge against disruptions, while 42% are localising supply chains to cut transport costs and improve oversight.
Beyond geographic diversification, 75% of firms favour working with more rather than fewer suppliers. The challenge, however, is complexity. Managing a growing web of suppliers requires time and resources. Here, technology can play a role: AI-driven contract and pricing platforms can free up executives to focus on deepening relationships with suppliers.
Sustainability: a regulatory reality
Sustainability has gained traction in global trade, particularly since 2017, according to our analysis of World Trade Organisation reports. This trend is reflected in the corporate agenda: supply-chain executives say sustainability is a higher priority than a year ago. However, regulatory pressure is a greater driver than climate change itself.
What happens if regulation weakens? Trump has already pulled the US out of the Paris Agreement, and the EU is considering delaying the full implementation of its Carbon Border Adjustment Mechanism. If governments backtrack on climate policies, corporate sustainability efforts could lose momentum.
Trade in 2025 will be defined by tough choices. Firms must balance diversification and localisation, flexibility and control. Efforts to drive efficiency and agility must be matched with creative strategies for cost management. It will require constant recalibration of short- and long-term plans and advanced technologies to identify risk and automate processes. The winners will be those who can adapt quickly, manage complexity and embrace technology to stay ahead in this era of new globalisation.
John Ferguson is a Global Lead for New Globalisation at Economist Impact while Melanie Noronha is a Principal at Economist Impact. The article was republished from the World Economic Forum website.
*The views expressed in this article are those of the author alone and not the World Economic Forum.
BUSINESS REPORT