Changes in Global Trade Patterns – Asrar Qureshi’s Blog Post #1104

Changes in Global Trade Patterns – Asrar Qureshi’s Blog Post #1104

Dear Colleagues! This is Asrar Qureshi’s Blog Post #1104 for Pharma Veterans. Pharma Veterans Blogs are published by Asrar Qureshi on its dedicated site https://pharmaveterans.com. Please email to pharmaveterans2017@gmail.com  for publishing your contributions here.

Credit: Jeffry S.S.

Credit: Wolfgang Weiser

Credit: Wolfgang Weiser

This blogpost is based on ‘The McKinsey Global Institute's January 2025 report, *Geopolitics and the Geometry of Global Trade: 2025 Update’. Link at the end. An excerpt from interview wit Robert Hormats is also included. Mr. Hormats is the former Under Secretary of State for Economic Growth, Energy, and the Environment.

Preamble

Geopolitical dynamics are reshaping global trade patterns. Analyzing 2024 data, the report highlights a continued trend of countries reconfiguring trade relationships along geopolitical lines. The trend had been coming for long though.

I had noted that immediately after WTO and GATT things, regional agreements started getting promoted. COMESA was for East and South Africa, NAFTA was North America Free Trade Agreement, ASEAN countries had their own trade agreements between them, and even SAARC had SAFTA. It was interesting to note that the counter-globalization effort started parallel to globalization.

Since President Trump took over, the trade environment has been jolted like never before. However, many undercurrents were already in the progress. McKinsey report covers these trends in detail and makes an enlightening read. 

Being a small player at the world stage, Pakistan is still not immune to world changes. In fact, we are more likely to be affected due to our extraordinary dependence on imports in key business sectors. 

The summary of report is very brief to keep the post short. I would encourage interested people to read the full report.

Key Findings

Geopolitical Realignment of Trade

Countries are increasingly adjusting their trade partnerships based on geopolitical considerations:

United States continues to reduce trade with China, shifting towards economies like Mexico and Vietnam. 

European Union has decreased trade with Russia, increasing exchanges with partners such as the United States.

China now conducts the majority of its trade with developing economies, including ASEAN nations, Brazil, and India. 

Diversification by Developing Economies

Emerging markets are expanding their trade networks.

ASEAN, Brazil, and India: These economies are strengthening trade ties across various geopolitical blocs, enhancing their roles in global trade. 

Trade Dependency and Concentration

Despite efforts to diversify, regions remain dependent on imports for critical resources: 

Every major region relies on imports for over 25% of its consumption of at least one essential resource, manufactured good, or service. 

Even net exporters may depend on imports for specific crucial products, such as the U.S. reliance on rare earth metals.

Potential Economic Impacts of Trade Fragmentation

The report models scenarios where increased trade frictions lead to significant economic consequences.

A scenario with heightened tariffs between Western and Eastern blocs could reduce global GDP by approximately 1.5%, with some economies experiencing declines up to 6%. 

Geopolitics and the geometry of global trade

Trade between Western and Eastern groups could decrease by 70%, while intra-group trade within these blocs would increase substantially. 

Strategic Implications for Businesses

Businesses must navigate this evolving trade landscape by:

- Developing Geopolitical Awareness: Understanding the geopolitical factors influencing trade to make informed strategic decisions.

- Diversifying Supply Chains: Reducing reliance on specific regions to mitigate risks associated with geopolitical tensions.

- Engaging in Scenario Planning: Preparing for various trade configurations and potential disruptions.

- Collaborating Across Sectors: Working with stakeholders to shape resilient and adaptable trade networks.

Sum Up

In summary, the report underscores the importance of proactive strategies in response to the shifting geometry of global trade, driven by geopolitical realignments. Businesses that adapt to these changes are better positioned to thrive in a complex and dynamic global economy.

Excerpt from Interview with Robert Hormats – The American View

[Quote] Until recently we lived, relatively speaking, in a very low-cost world. We expected and relied on just-in-time delivery from China and other countries that made cheap goods by paying low wages to their workers and shipped those goods across the world. That was a time of relatively little instability, during which, for example, ships were not vulnerable to being shot at as they crossed the Persian Gulf. We could make decisions with a high level of confidence, and we developed a certain level of complacency that we would all live happily ever after. But it turns out that’s not the case. The efficiency of a globalized world is being compromised by the fact that we can’t always get goods from the source that is cheapest or that has the best delivery infrastructure.

So, what can companies do? They can take a lesson from the US government of the 1970s, which realized, after the oil embargo, that it needed a strategic petroleum reserve to increase resilience and autonomy. We saw a similar phenomenon with the Biden administration, which launched an effort to produce more semiconductors on American soil. Companies need to take advantage of opportunities in North America and to work with companies that have efficient supply lines with the US.

Another important area to consider is rare-earth minerals, which are critical for a lot of cutting-edge technology. China is the biggest producer and refiner of these rare earths, and if we don’t want to rely on China, we’re going to have to develop our own capacity. We do have a supply of these rare-earth minerals here in the US, but you can’t get a license to refine them because doing so can create a lot of environmental havoc. There are many things we need to do to protect ourselves from rare-earth supply shocks. And there’s a similar issue with many of our medicines, where we get the majority of the components of the pills we take, including antibiotics, from China and many from India too. Data storage capacity will be an issue too, both because there is more and more data and because we don’t necessary want to ship our data abroad. We’re already seen issues with data cables, including in the Baltic Sea.

Companies will also need to develop trusting partnerships with other countries so that they don’t have to worry about the theft of their intellectual property, the disruption of supply chains as a tool to gain political leverage, or a new government that interferes with market activities. To build these relationships, companies need an understanding of where potential partner countries are heading, as well as help in working with the governments of those countries—and even with Washington, DC. This isn’t just about lobbying for what they want. It’s also about mutual education, in which both businesses and governments improve their understanding of the implications of existing and future regulation, including—but not only—around new technologies. This sort of educational relationship won’t work in every country, but it can be very effective.

Concluded.

Disclaimers: Pictures in these blogs are taken from free resources at Pexels, Pixabay, Unsplash, and Google. Credit is given where available. If a copyright claim is lodged, we shall remove the picture with appropriate regrets.

For most blogs, I research from several sources which are open to public. Their links are mentioned under references. There is no intent to infringe upon anyone’s copyrights. If, any claim is lodged, it will be acknowledged and recognized duly. 

Reference:

https://www.mckinsey.com/mgi/our-research/geopolitics-and-the-geometry-of-global-trade-2025-update?stcr=D31548A12E7A46E7AADA8045C00E1E5C&cid=other-eml-alt-mip-mck&hlkid=561f4aa2e0814cc79e71c48abcc914c2&hctky=15999472&hdpid=69ff6d90-5e86-4b0a-89a4-c8b006be2d25#/ 

https://www.mckinsey.com/capabilities/geopolitics/our-insights/robert-hormats-on-how-todays-geopolitics-affects-companies?stcr=5830B1774B014730A7BB253064A10EF0&cid=other-eml-alt-mip-mck&hlkid=288bc27fc87b423aa07dadb831ea0bfa&hctky=15999472&hdpid=69ff6d90-5e86-4b0a-89a4-c8b006be2d25