Global trade shifts under geopolitical pressure as growth continues: McKinsey report

Global trade is continuing to expand despite rising geopolitical tensions and tariff barriers, but flows are increasingly being reshaped along political and strategic lines, according to a new update from the McKinsey Global Institute.

The report, Geopolitics and the Geometry of Global Trade 2026, finds that goods trade grew by around 6.5% in 2025, broadly in line with global economic growth, even as supply chains adjusted and trade relationships evolved.

Rather than retreating, trade is being reconfigured. Countries are increasingly trading with geopolitically aligned partners while reducing exposure to more distant or politically sensitive markets. This trend has accelerated amid higher tariffs and policy uncertainty.

A key driver of recent trade growth has been artificial intelligence. Exports of AI-related goods, including semiconductors and data centre equipment, rose by nearly 40% in 2025 and accounted for roughly one-third of total trade growth.

This surge is reinforcing the role of major manufacturing hubs in Asia, particularly Taiwan, South Korea and parts of Southeast Asia. At the same time, countries such as India and ASEAN economies are gaining ground as companies diversify supply chains.

Tariffs are also reshaping trade flows. US–China trade has declined significantly, with the United States sourcing more imports from alternative partners. Chinese exporters, meanwhile, are redirecting goods to new markets, often at lower prices to remain competitive.

Europe faces a more difficult position. The report highlights growing pressure from both increased Chinese competition and tighter access to the US market, creating a challenging environment for exporters.

For investors, the findings point to a more complex global landscape. Supply chains are becoming more regionalised but remain interconnected, requiring companies to balance resilience with cost efficiency.

The report concludes that geopolitical tensions, technological change and shifting trade alliances will continue to redefine global trade patterns, with important implications for investment decisions and long-term strategy.