US Trade Policy: Global Fragmentation or Restructuring?

On April 2, 2025, President Donald Trump announced sweeping tariff hikes on imports from countries running trade surpluses with the United States marking a profound shift in global trade dynamics. The resulting tariff rollout, characterised by a broad bandwidth and unclear rules of origin, has triggered widespread policy shifts globally as countries restructure their value chains and safeguard competitiveness. This development has generated conflicting views with some analysts warn of global fragmentation, while other institutions have emphasised the resultant upsides of decoupling which is global supply chain restructuring.

The Fragmentation Argument

In theory, tariffs disrupt the equilibrium of global trade. The World Bank warns that the “Liberation Day Tariffs” could cause a sharp rise in global trade barriers, ultimately slowing global growth as trade efficiency declines. With an average U.S. tariff of roughly 48% on Chinese goods, a substantial industrial glut is expected, particularly given that the U.S. absorbs over 70% of China’s exports of industrial goods. In response, China is actively diversifying its export markets in an effort to absorb excess production capacity and sustain employment and domestic activity.

Consequently, fears are rising that China may engage in large-scale export dumping, flooding emerging markets with cheap industrial goods and electronics. Governments are already responding defensively. Mexico has proposed a 50% import duty on Chinese vehicles, while the European Union is joining forces with the US and Canada to curb imports of low-cost Chinese steel through new quota cuts and tariff hikes. Meanwhile, Southeast Asian nations are witnessing an influx of Chinese electronics and appliances, prompting regulators to introduce new safety and quality standards to mitigate domestic market distortions.

These developments highlight that the Liberation Day tariffs are accelerating global economic fragmentation. As countries prioritise self-reliance and local growth, the world runs the risks of getting partitioned into competing trading blocs.

The Restructuring Counter Narrative

However, this fragmentation is accompanied by a new wave of global restructuring characterised by increased resilience and diversification. Contrary to expectations, global trade volumes have remained robust as nations revamp trade routes and supply chains to avoid tariff exposure.

North American supply chain integration is amplifying under the US-Mexico-Canada Agreement (USMCA), which has provided a safety net for Mexico through proximity and trade privileges. Medium and heavy-duty trucks assembled within the USMCA region are subject to duties on non-US content, thereby bolstering intermediate goods trade. As underscored in IMF’s World Economic Outlook 2025 and World Bank Trade reports, this North American integration may partially offset the drag of weaker global trade.

Furthermore, nearshoring and friend-shoring policies are gaining momentum across continents. In Asia, the Regional Comprehensive Economic Partnership (the world’s largest trade bloc encompassing China, Japan, South Korea, ASEAN, Australia and New Zealand) is concertedly deepening intra-regional integration under the emerging “China+1” framework. Countries including Vietnam, Indonesia and India are attracting investment as multinational firms seek to hedge against supply disruptions and tariff uncertainty.

Looking Ahead

Against this backdrop, the IMF’s World Economic Outlook 2025 projects subdued but positive global growth as world trade expands at a slower pace than pre-tariff era. In essence, the US trade policy shift of 2025 represents a paradox. While it undeniably accelerates fragmentation, it also incentivises innovation and restructuring within global trade.

This may not mark the end of globalisation but rather announce the emergence of regionalised and resilient trade system, a new world order defined not by integration or isolation, but by strategic realignment.