If you only read the headlines, you might guess that global trade came to a standstill in the last year as the U.S. put into place a new tariff regime. You would be 180 degrees wrong.
The big picture: Trade flows proved surprisingly robust last year, with the imposition of high U.S. tariffs changing the patterns and volumes, but not upending the basic reality of a deeply interconnected world economy.
- That's the upshot of two reports out this week, one from the World Trade Organization and the other from the consulting firm McKinsey.
- It reflects China rerouting its exports away from the U.S. and toward Europe and emerging markets — as well as the AI investment boom that created a surge in U.S. imports of semiconductors and related products.
By the numbers: The WTO's latest global trade outlook finds 4.6% growth in global goods trade last year, representing both AI-related products and front-loading by U.S. importers looking to avoid tariffs.
- Global shipments of the hardware needed for AI rose 37% last year, the McKinsey Global Institute found, including a 66% surge in the U.S.
Zoom in: By contrast, U.S. trade in other manufactured goods was down slightly.
- U.S. imports from China plunged, particularly of consumer goods facing new, high tariffs. But Chinese exports were steady, due to a surge in exports of higher-value products like electric vehicles and industrial components to the rest of the world.
- Chinese shipments of "intermediate inputs" like memory chips rose 9% last year, fueled by exports to Europe and emerging markets around the world.
Zoom out: The reality is that global trade amounts to a complex system in which one major disruption — last year, it was U.S. trade policy — causes ripples but doesn't so much destroy overall activity as it reroutes it.
What they're saying: "When you have a highly interconnected network, you have flexibility — much more flexibility than you might think," Olivia White, a McKinsey partner and author of the report, tells Axios.
Yes, but: The blockage of the Strait of Hormuz and the destruction of oil and natural gas infrastructure in the Middle East have generated a new challenge to global commerce, threatening the flow of energy as well as fertilizer needed for crops.
- WTO director-general Ngozi Okonjo-Iweala said in the report that its baseline forecast of continued growth in world trade this year "is under pressure from the conflict in the Middle East."
- Beyond energy, it notes that major agricultural producers including India, Thailand and Brazil rely on the fertilizer that normally passes through the Persian Gulf.
The bottom line: "Just because a trade network can be robust, self-healing and adapt to a lot of shocks doesn't mean that it can be robust to every shock," White said.
