Globalization is being rewired, not reversed, says Atlantic Council analyst

Why "rewiring" and not "deglobalization"

According to the Atlantic Council analysis, trade diversification was among the most widely discussed themes at the 2026 Annual Meetings of the International Monetary Fund and World Bank in Bangkok, Thailand. The October World Economic Outlook also stressed the importance of keeping trade channels open.

Tran, a nonresident senior fellow at the council's GeoEconomics Center, says world trade has shown signs of fracture, but he calls the term "deglobalization" too over-reaching and simplistic. In his definition, a rewiring means reconfiguring global supply chains to reflect national strategic priorities amid geopolitically driven fragmentation. Resilience now carries more weight than efficiency. The emphasis has shifted from "just in time" inventory to "just in case".

AI goods and services lift trade

Contrary to perceptions of a slowdown, global trade as a percentage of GDP rose in 2025 to more than 68 percent, from around 60 percent in recent years. Tran writes: "That's hardly deglobalization."

• AI-related goods account for 15 percent of merchandise trade but contributed 42 percent of trade growth in the first three quarters of this year.
• Trade in critical minerals needed for components such as semiconductors reached $2.5 trillion, about 10 percent of total merchandise trade.
• Services trade has grown 4.7 percent a year, against 2.2 percent for goods, lifting its share to a high of 25 percent of world trade.

Friendshoring and the cost for poorer countries

Trade and foreign direct investment are fragmenting along geopolitical lines. Quarterly trade volumes have grown about 2.5 percent more slowly between geopolitically distant countries than between aligned ones. The share of investment among distant countries fell from 23 percent to 13 percent between 2013 and 2022, while flows among geopolitically close advanced countries rose from 35 percent to 45 percent. Tran calls this friendshoring in practice.

FDI rose by 14 percent to $1.6 trillion in 2025. Flows to developed countries increased by 43 percent year over year, while flows to developing countries declined by 2 percent. Low-income countries were hit hardest.

The US, China and South-South trade

The US share of world imports has declined from a high of 14 percent in 2015 to about 13 percent, and its export share from 9 percent to about 8.5 percent. Tran says other countries are trading more with each other to adjust to unpredictable US tariffs. Regional trade agreements notified to the World Trade Organization rose from 350 in 2022 to 580.

China raised its share of world trade from 4.4 percent in 2001 to 15 percent in 2020 and has stayed around that level. Citing the OECD, Tran notes that the foreign content in China's exports fell from 19.4 percent in 2010 to 17 percent in 2022, below the G20 average of 19.8 percent. He concludes that the Made in China 2025 initiative has largely met its goal of raising domestic value added. He also notes that some observers use the term "China Shock 2.0" for the country's growing trade surplus, which he calls neo-mercantilism and not an equitable or sustainable approach.

Trade among developing countries is a bright spot, growing 8 percent to 9 percent annually to $7.2 trillion, or 57 percent of developing-country goods exports. Southeast Asia has become a hub for critical minerals and AI-related products, and Asia is estimated to contribute around 68 percent of global GDP expansion in 2026.

Winners and losers

Tran concludes that the rewiring has helped the world adjust to geoeconomic fragmentation but has produced winners and losers. Countries close to major powers and active in AI and critical mineral supply chains tend to fare better. Those without such ties are under pressure. Low-income countries are worst hit, suffering from sluggish trade, falling FDI and cutbacks in official development aid.