The new geometry of trade: How leaders can respond to structural shifts

Global trade experienced a massive shock in 2025. The highest US tariffs in generations upended trade dynamics and deflected about $165 billion in trade from the US–China corridor. And the disruptions continue in 2026. What does it all mean for the future of trade—and for the global economy?

In a recent McKinsey Live event, McKinsey Global Institute (MGI) Chair and Senior Partner Shubham Singhal and MGI Partner Jeongmin Seong discussed the shifts affecting trade, the key geopolitical factors shaping the global order, and the moves leading companies are making to build resilience and create enduring advantage.

The world is shifting—but not the way you think

Despite ongoing upheaval, research from MGI reveals that global trade continued to grow in 2026. Trade is also traveling over longer geographic distances and reconfiguring along shorter geopolitical lines as firms and economies actively rewire trading partners to navigate a new era of global connections. Amid ongoing uncertainty, it’s important to remember that imbalances are structural and hard to resolve.

Key political factors are shaping the global landscape

In a multipolar landscape, CEOs are concerned not only about trade flows but also about how they run global companies. How should they redesign their global operating models? How do they stay global while meeting localization requirements? How do they build resilience without increasing cost?

The value at stake is significant: Companies are exposed across revenues, costs, and capital allocation. But these risks also create opportunities to explore new growth corridors in emerging markets, place strategic bets in critical sectors such as AI and digital infrastructure, and rebalance portfolios dynamically.

Several forces are driving trade reconfiguration

Three forces have been particularly important in reconfiguring trade:

• AI: The conversation about AI today tends to focus on its disruption to the job market or its potential to boost productivity. But AI has started showing up in trade as well. The overall size of AI-related trade is relatively moderate, about 7 percent of total trade, but it accounted for about one-third of global trade growth in 2025. This trend is continuing into 2026, creating a massive ripple effect globally.
• China: Long known as “the factory of the world,” China is becoming “the factory to the factories,” exporting components, machinery, and capital equipment across the Association of Southeast Asian Nations (ASEAN), India, and the Middle East. Last year, despite high tariffs, China had a record trade surplus, while exports of intermediate inputs and capital goods reached more than $175 billion.
• The rise of connecting economies: Most notably, ASEAN economies are playing matchmaker for the global supply chain. In 2025, ASEAN exports grew by about 14 percent, and imports grew by about 11 percent. The United States contributed about one-third of the export growth, while China accounted for about half of the total import growth. The big question is how far these connections can go and whether they can add meaningful local value.

Capital is moving to the industries of the future

Foreign direct investment (FDI) offers a clear signpost for the future of trade. By highlighting where productive capacity is built today, FDI indicates where trade will flow tomorrow.

Today’s FDI landscape reinforces the reconfiguration story. Capital flows and trade reconfiguration are aligned, and investment follows the same patterns seen in trade. It’s not deglobalization, but a rewiring of the system.

At the same time, a disproportionate amount—about 75 percent—of FDI is flowing into future-shaping sectors, such as AI infrastructure, advanced manufacturing, and the resources that power them. Leaders should treat FDI as a strategic signal of where capacity is being built in their sector and which corridors are strengthening versus weakening. They can then anticipate trade shifts before they show up in volumes, inform manufacturing footprint and supply chain decisions, and identify where to invest ahead of competitors.

Leading companies are responding proactively

To build resilience and durable advantage, leading companies are responding proactively across five pillars:

• Manage immediate disruptions to protect earnings and strengthen the balance sheet for what comes next.
• Place capital strategically to preserve upside, limit downside, and capture the full value of available incentives.
• Build a resilient global network through flexible sourcing, workforce, and technology choices across markets.
• Identify the corridor shifts and sector tailwinds that matter most, and act quickly to capture opportunities as they arise.
• Build adaptability and speed to unlock durable advantage in an era of volatility.