New era of global trade headaches dawns as US-China rivalry reshapes economic outlook

19 October 2025

A U.S. flag flutters near a ship as it's containers are unloaded at the Port of Los Angeles, in San Pedro, California, U.S., May 1, 2025. REUTERS/Mike Blake

Amid the ongoing tension between the United States and China, the global economic landscape appears to be shifting into what policymakers are calling a “new normal” one defined by structural uncertainty, supply-chain realignment and deepening skepticism about the resilience of globalization.

At this week’s meetings of the International Monetary Fund (IMF) and World Bank in Washington,­ participants acknowledged the global economy’s ability to absorb shocks so far but voiced growing fatigue and concern that the status quo in trade and investment may no longer hold. IMF Managing Director Kristalina Georgieva described the mood as cautiously constructive but underscored that cooperation could not be taken for granted.

The root of this uncertainty stems largely from escalating U.S.-China trade policy moves. On one side, the United States has threatened sweeping tariffs and export restrictions, including a possible 100 percent duty on certain Chinese goods, following Beijing’s decision to impose greater controls on critical materials. On the other side, China has responded with measures of its own and signalled a stronger willingness to serve domestic industry over global commerce.

This uneasy backdrop is encouraging many governments and businesses to speed up diversification strategies. Rather than relying on the U.S.-China bilateral axis, companies are rethinking supply-chain concentration, exploring new trade routes and seeking new regional alliances. Some global trade experts believe we are witnessing the early stages of “segmentations” in the world economy where multiple hubs coexist rather than a single global centre.

Still, despite the threats, global growth engines have not yet stalled. Strength in sectors like U.S. artificial-intelligence investment, robust corporate earnings and stimulus-driven support in parts of Europe and Asia have helped offset the most immediate shock risks. But analysts are clear that resilience is not the same as immunity.

China’s own economic trajectory further shades the broader story. The world’s second-largest economy is grappling with domestic challenges weak consumer demand, a slumping property market and concerns about financial stress just as overseas tensions mount. From Beijing’s standpoint the calculus is shifting: export growth remains vital but is increasingly viewed as vulnerable to foreign policy shocks.

For businesses and investors the implications are many-fold. In practical terms, companies must now navigate not just market cycles but geopolitical cycles. Before, trade disruptions were episodic; now they are persistent. Firms operating global production networks are already adapting by building redundant capacity, shifting sourcing away from vulnerable corridors and redesigning products to minimise exposure to any one jurisdiction.

The financial system also sees echoes of these trends. Credit stress, elevated debt levels and large non-bank finance sectors remain areas of concern. If trade and investment flows become more fragmented, capital markets could face friction particularly in emerging-market regions that depend significantly on open access to foreign technology and supply chains.

For policy-makers the message from this week is clear: maintaining an open and predictable trade environment is becoming harder. The old playbook of low tariffs, open borders and dense global integration may have given way to a world where national strategic interests, alliance choices and supply-chain resilience matter as much as economic efficiency. And while that does not mean globalization is ending, it does mean its terms are changing.

In the weeks ahead markets will be watching several critical indicators: whether Washington or Beijing soften rhetoric or roll out new counter-measures, how private-sector firms adjust supply chains, and how countries outside the U.S.-China relationship such as those in Southeast Asia, Africa and Latin America react to shifts in global trade patterns. Some may gain from the transition, while others could get squeezed.

Ultimately this story is about more than tariffs. It is about a re-ordering of assumptions about how trade, technology and capital move around the world. The “new normal” may not be dramatic in the sense of an abrupt collapse. Rather it may be defined by slower growth, more friction, more regionalism and less faith that the old rules will apply indefinitely.