Trade growth stalled after the Global Financial Crisis, and world trade is now splitting along geopolitical lines. This poses a distinctive challenge for the EU, whose two largest trading partners are willing to use trade as leverage. This column argues that the fragmentation is best understood through the lens of geoeconomics, in which trade dependencies are weaponised in pursuit of geopolitical goals. China’s rise has shifted geoeconomic power in its favour, eroding Western leverage. Europe must now weigh the gains from specialisation against the costs of dependency, while also strengthening internal political coordination.
After decades of rapid growth, international trade stalled shortly after the Global Crisis and thereafter even started to fragment along geopolitical lines (Campos et al. 2023, Bosone et al. 2024). For the EU, this creates a distinctive challenge: its two largest trading partners are willing to use trade as leverage, and their interests sometimes diverge from those of the EU. In a new paper (Georgiadis et al. 2026), we argue that the fragmentation is best understood through the lens of geoeconomics, i.e. by the increasing weaponisation of trade dependencies in the pursuit of economic and geopolitical objectives.
World trade in the aftermath of the Global Crisis
Right after the Global Crisis, the growth in the world economy’s trade intensity stalled (Figure 1, left panel). One part of this slowdown reflects a decline in the scope for further integration due to declining marginal returns. After most major countries had integrated into the world economy (most prominently China), fewer opportunities for further expanding global value chains (GVCs) remained. Another part reflects that after driving world trade growth for decades, China started to broaden its industrial base and to shift from an export-led growth model towards greater reliance on domestic demand (Figure 1, right panel). Finally, political support for further trade integration weakened as negative distributional effects accumulated within some countries and as the vulnerabilities implied by global value chains became salient during the COVID-19 pandemic.
Figure 1 Evolution of world trade, 1970-2025 (exports and imports in percent of GDP)
Source: World Bank World Development Indicators (WDI), IMF Direction of Trade Statistics (DoTS); authors’ calculations.
Note: In the left panel the black solid line indicates the ratio of world exports and imports of goods and services to GDP obtained from the WDI. The grey short-dashed line indicates the ratio of world goods trade to GDP obtained from the IMF DoTS. Both indicators of world trade include trade between EU countries. The grey long-dashed line indicates the ratio of world goods trade to GDP obtained from the IMF DoTS, excluding intra-EU trade. The right panel depicts the ratio of trade to GDP obtained from the IMF DoTS for the EU (dark blue dash-dotted line), the US (green solid line), and China (red short-dashed line). The light-blue long-dashed line indicates the ratio of intra-EU trade to EU GDP. EU comprises the 27 member states of 2026. The data cover the period from 1970 to 2025.
The geopolitical fragmentation of world trade
The broad-based stalling of world trade in the immediate aftermath of the Global Crisis soon morphed into a fragmentation along geopolitical lines (Bonadio et al. 2025, Conteduca et al. 2025, Gopinath et al. 2025). While trade intensity between geopolitically aligned countries has been stable since the 2010s, it has fallen across geopolitical blocs (Figure 2, left panel). This pattern is particularly evident when distinguishing a ‘US-aligned’ bloc, which includes all Western countries, and a ‘China-aligned’ bloc, which includes, for example, Russia (Figure 2, right panel). At the same time, trade policy has increasingly been shaped by geopolitical considerations (Figure 3). This selective decoupling is difficult to rationalise with structural saturation, global rebalancing, increased salience of supply-chain vulnerabilities, and political backlash against integration, all of which would affect trade growth uniformly across countries rather than selectively along geopolitical lines.
Figure 2 Total world exports, within- and across-bloc exports, 1995-2025
Source: Trade data from CEPII BACI database (Gaulier and Zignago 2010); Global Trade Monitor; authors’ calculations.
Note: Blocs are defined following Gopinath et al. (2025) based on UN General Assembly voting patterns (Bailey et al. 2017), with every country assigned to either a US-aligned or China-aligned bloc. The left panel presents the ratio of world within-bloc exports to GDP (black solid line) and world across-bloc exports to GDP (grey dash-dotted line). The right panel presents the share of within-bloc exports in total world exports (black solid line). The red-dash-dotted line presents the same statistic dropping China as importer and exporter from the sample, the blue long-dashed line drops EU countries, and the green short-dashed line the US. EU comprises the 27 member states of 2026. CEPII data cover the period from 1995 to 2023 and are extrapolated to 2025 using data from Global Trade Monitor.
The observed fragmentation implies higher policy-induced trade costs across geopolitical blocs. A rapidly evolving literature explains the incentives of countries to erect such barriers with geoeconomic considerations (Clayton et al. 2024, McGuirk and Trebesch 2025, Mohr and Trebesch 2025). A coercer country can wield geoeconomic power over a target country by threatening to raise trade costs (up to the point of suspending trade entirely), for example via import tariffs or export controls. The effectiveness of such threats and thus a coercer country’s geoeconomic power depends on its importance as a trading partner and on the ease with which target countries can substitute their trade with it. In geoeconomics, countries therefore engage in trade not only to realise efficiency gains but also to build the capacity to weaponise trade against other countries. The US tariff escalation vis-à -vis China, launched by the first Trump administration in 2018, maintained by Biden, and intensified since 2025 in the second Trump administration illustrates this logic. The geoeconomic interpretation is that it reflects an effort by the US to reduce its dependency on China rather than a ‘protection-for-sale’ response to import competition or an attempt to exploit a terms-of-trade externality.
Figure 3 Trade policy activity and global tariff rates index over time, 2010-2025, 1988-2025
Source: Centorrino et al. (2025); CEPII BACI database (Gaulier and Zignago 2010) and Teti (2024).
Note: The left panel plots the Trade-Policy Activity (TPA) Index of Centorrino et al. (2025). The index reflects a global factor estimated using the block structure by trade policy measure category (facilitating and other). The factor is normalised relative to January 2010-December 2011. Positive values indicate heightened activity relative to the baseline and negative values reduced activity. The right panel shows trade-weighted average tariff rates from 1988 to 2025. The solid black line plots observed tariff levels, incorporating all US tariff changes and resulting retaliatory tariffs implemented through 15 August 2025. The dashed grey line shows a counterfactual path that excludes the additional tariffs associated with the trade war escalation starting in February 2018.
Shifts in geoeconomic power can explain geopolitical trade fragmentation
Conceptually, global trade fragmentation may arise when an incumbent great power faces the emergence of a geopolitical challenger (Becko et al. 2025, Broner et al. 2025, Camboni and Porcellacchia 2025, Clayton et al. 2026, Meyer and Wesseler 2026). Given the associated shift in the global geoeconomic power configuration, third countries may find it attractive to realign towards the rising power, potentially even at the cost of higher trade barriers with the bloc controlled by the incumbent great power. At the same time, the incumbent great power and its allies may reduce trade with the rising challenger to slow its ascent and limit the decline in their geoeconomic power. The result is a reorientation of trade flows towards countries in the same geopolitical bloc.
China’s rise over the past two decades has shifted global geoeconomic power configurations in its favour and at the expense of the US. China gained significant leverage over both the EU and the US through ‘threats not to sell’, reflecting its central role for many intermediate goods (Figure 4, Clayton et al. 2025), and through ‘threats not to buy’, reflecting its importance as an export market for Western manufacturing. China has become a credible alternative for many emerging economies seeking to diversify dependencies. By improving the outside option for these economies, China’s rise has weakened the geoeconomic leverage of the US and EU.
Figure 4 Bilateral geoeconomic power configurations based on ‘threats not to sell’ , 1995-2022
Notes: The figure shows bilateral geoeconomic power arising from ‘threats not to sell’ based on Clayton et al. (2025). The data cover the period from 1995 to 2022. ‘Critical services’ denote financial, telecommunication, and IT services; these sectors are critical as they give rise to strong network externalities. ‘Goods+services’ denote all remaining goods and services.
Implications for the EU
How should Europe and the EU navigate a world characterised by growing geopolitical tensions and changing geoeconomic power configurations? We argue that to succeed, the EU must embrace the challenges implied by the global reconfiguration of geoeconomic power. First, and most fundamentally, the EU must recognise the central role of geoeconomics in shaping trade. As the main global geopolitical fault line is no longer running through Europe, the geoeconomic interests of the EU and the US are no longer perfectly aligned. Although certainly accentuated by a Trumpian flavour, the US announcement of import tariffs on the EU in early 2025 and the threats over Greenland’s sovereignty can be interpreted as a reflection of this divergence. Second, the EU must trade off more explicitly the gains from specialisation against the costs associated with dependencies, whether in critical inputs (e.g. energy), in network industries (e.g. financial services), or in national security. Third, to be recognised as a credible actor, the EU’s internal political coordination needs to become more efficient, synergistic, and resilient. Finally, the EU should form coalitions with like-minded partners aimed at resuscitating a rules-based international order previously anchored in the US (Carney 2026).
Source : VOXeu
