Representative Image / Google

My book, 'The Global Trade Paradigm,' published in 2023, argued that globalization was on the wane but entering a phase of recalibration—one in which efficiency-driven global value chains (GVCs) would progressively incorporate resilience, diversification, and geopolitical awareness. In 2025, the world experienced a sharp rupture rather than a recalibration: geopolitics did not merely shape trade decisions; it subordinated them.

First, economic interdependence underpinned by trade came to be seen as a vulnerability. Sanctions regimes expanded from narrow financial tools into comprehensive instruments of economic warfare, targeting energy, technology, capital markets, and logistics. Trade flows became frontline weapons.

We saw the decisive return of tariffs as structural instruments of industrial and geopolitical policy. Tariffs, while ostensibly about balance of payments and industry protection, are used to signal or force geopolitical alignment in addition to shaping supply chains and influencing investment location.

The normalization of tariff escalation—often justified on national security, climate, or technology-control grounds—has diluted the long-standing taboo against unilateral trade barriers that defined the post-WTO era.

Second, it had been expected that resilience would be pursued primarily by firms, with governments playing a facilitating role. By 2025, the opposite had occurred. States—more than corporations—became the primary champions of supply-chain restructuring.

Industrial policy moved to the center of economic strategy. Subsidies, local-content requirements, export controls, and investment screening proliferated across economies. Measures such as more stringent semiconductor export controls signaled a decisive break from the post-war trade consensus. Markets still mattered, but they increasingly operated within explicit political guardrails.

Closely related has been a fundamental shift in the nature of U.S. trade agreements. The United States has largely moved away from comprehensive, market-access–driven free trade agreements toward frameworks rather than treaties. Trade policy has become more flexible but also more uncertain for firms making long-term investment decisions.

These frameworks are also explicitly transactional. Market access, subsidies, regulatory forbearance, or participation in supply chain initiatives are increasingly exchanged for geopolitical cooperation, investment commitments, or alignment on technology controls. Trade concessions are no longer generalized or rule-based; they are conditional, bilateral, and often time-bound.

Third, decoupling from China accelerated sharply in critical sectors—advanced semiconductors, artificial intelligence, clean-energy technologies, and defense-adjacent manufacturing. Trade patterns with China became bifurcated: consumer goods and lower-value manufacturing continued to flow, while strategic technologies hardened within rival blocs. A risk is the accelerated emergence of parallel systems with limited interoperability—instead of a single global trade system with redundancy.

Fourth, multilateralism eroded sharply. The World Trade Organization is now largely sidelined in its core dispute-settlement function. Trade rules reflect power relations more than negotiated consensus.

Even among allies, industrial competition replaced cooperation, as countries raced to attract capital, talent, and manufacturing capacity. The vision of a rules-based system cushioning geopolitical shocks gave way to a more transactional order.

Finally, the social contract underpinning globalization fractured more visibly than expected. Concerns about inequality and political backlash did not push policymakers toward inclusive growth within an open system. Instead, electoral pressures drove leaders toward visible protection, national preference, and economic and technological sovereignty—even at measurable economic cost. Trade policy became a domestic rallying cry, further shrinking the space for technocratic compromise.

The quantitative data reflect the changes in the global trade landscape. Global trade values remained broadly flat through 2024–25 despite continued nominal GDP growth. More tellingly, trade in strategic sectors—advanced semiconductors, critical minerals, and clean-energy equipment—has increasingly been rerouted along geopolitical lines, even as aggregate trade volumes appear resilient. Global trade is no longer optimizing primarily for efficiency but for alignment, control, and resilience.

For India and much of the Global South, the reordering of trade in 2025 had adverse consequences while also offering opportunities. The aggressive tariff situation vis-à-vis the U.S. has been a major constraint.

On the other hand, India has emerged as a partial beneficiary of selective de-risking of global value chains—particularly in electronics assembly and digital services—leveraging market size, demographics, and strategic alignment with advanced economies.

For the Global South, the shift from rules-based trade to framework agreements and transactional arrangements raises the bar for state capacity, negotiation leverage, and policy coherence.

More fundamentally, the new trade order disadvantages countries whose development strategies depend on predictable market access rather than geopolitical bargaining power. The retreat from comprehensive tariff liberalization, the normalization of subsidies in advanced economies, and the use of trade as an instrument of strategic alignment raise the risk of narrowing the industrialization pathways that globalization once opened for many economies.

For many low- and middle-income countries, participation in global value chains is increasingly conditional—shaped less by comparative advantage and more by alignment and security considerations they do not control.

For the Global South, thus, the challenge is potentially stark. As trade becomes more transactional and less universal, development risks becoming more contingent—dependent not only on economic fundamentals but also on geopolitical relevance in a fragmented world economy.

In 2025, trade was rapidly reordered by geopolitics. Globalization has not ended, but it has been decisively transformed—from an economic project with political constraints into a geopolitical project with economic consequences.

Arun M. Kumar is a managing partner at Celesta Capital and the former U.S. Assistant Secretary of Commerce for Global Markets and Director General of the U.S. Foreign Commercial Service. He also served as the former chairman & CEO of KPMG India. He is the author of 'The Global Trade Paradigm' (HarperCollins, 2023).

(The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of New India Abroad.)