Geopolitical Fragmentation of Trade

2025-11-06T00:00:00+01:00

At a time of heightened geopolitical tensions, economic exchanges between nations are increasingly governed by a bloc-based approach. We are witnessing a reorganisation of trade between groups of geopolitically aligned countries, i.e. a geopolitical fragmentation of trade.

According to our estimates covering a period preceding the second Trump administration, the fragmentation between blocs of military allies is more marked than between diplomatically aligned countries or countries maintaining close economic cooperation. This fragmentation began with the annexation of Crimea in 2014 and accelerated with Russia’s invasion of Ukraine in 2022.

Since 2010, the military allies of the United States have increased their imports from other US-allied countries by around 40%, while imports from Russia’s military allies have decreased by 80% compared with trade between or with countries not belonging to either of these blocs (see Chart opposite).

Fragmentation can stem from strategies that address legitimate concerns, such as reducing unwanted dependencies. However, trade fragmentation would be less economically efficient than the free allocation of resources.

Similarly, reduced trade diversification could undermine the resilience of our economies. Lastly, fragmentation could hamper our ability to tackle global challenges such as the green transition and development.

What Factors Could Drive the Reorganisation of Global Value Chains?

2023-07-27T00:00:00+02:00

After an exceptional expansion in trade in the 1990s and 2000s, globalisation experienced a slowdown between the financial crisis of 2008 and the COVID-19 pandemic, largely due to the rebalancing of China’s economic growth (see Chart).

The pandemic led to tensions, or even shortages, in certain value chains, revealing supply vulnerabilities in some countries. These disruptions raise the question of how resilient the global production organisation is and if globalisation is built to last. After the shock from the pandemic in 2020, the scale of global trade has exceeded its 2019 level, and the distance travelled by goods is as large as before.

However, the structure of trade has evolved. Exports of goods returned to their pre-pandemic level by December 2020, compared to September 2021 for services. The quick recovery in trade particularly benefitted China, which increased its trade surplus due to its exports.

Changes in the organisation of value chains in the years to come will depend on several factors. Geopolitical tensions and Russia’s invasion of Ukraine have led to trade diversion, which could increase in the context of new sanctions and businesses seeking out more secure ways to conduct trade. Climate change could affect certain production lines, particularly due to a decrease in agricultural yields and the relocation of agricultural production. Governments could encourage or even require businesses to adjust their value chains to reinforce their resilience and sustainability, or respond with protectionist measures.

Owing to these different factors, some particularly concentrated value chains are showing initial signs of diversification. Manufacturers of semiconductors, which have mostly been based in Korea and Taiwan up to now, have announced large-scale investments in production capacity in Japan, the United States and Europe.

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Geopolitical Fragmentation of Trade

What Factors Could Drive the Reorganisation of Global Value Chains?