Geopolitical forces are “steadily redrawing the map of global commerce” and future competitive trading advantages will largely depend on how countries or trading blocs anticipate, analyse and adapt to these forces, according to new research by Boston Consulting Group (BCG)
The coming decade will see dramatic changes in world trade, as national alliances and rivalries reshape the global economy. And, whilst projecting that annual global growth will grow annually at an average of 2.9%, “the routes goods travel will change markedly,” analysts predicted.
The report ‘Great Powers, Geopolitics, and the Future of Trade’ was based on trade and economic data covering over 150 countries and the expected impact of recent national and regional policy initiatives.
“Less than a decade ago, the contours of international commerce were still being shaped by an ambitious free-trade system aimed at opening new markets for companies and workers. These days, geopolitics and economic security considerations are becoming the defining forces,” the BCG researchers asserted.
Tectonic shifts in global corridors
In what they describe “as tectonic shifts in global trade corridors” BCG’s key findings on how national and regional trade flows will shift by 2033 are:
- North America will consolidate into a resilient trade bloc that will become increasingly less reliant on Asia, particularly China.
- China will become the dominant trading partner for the remainder, as its commerce with the West reduces. Stronger ties with fast growing emerging markets will spur growth.
- The Global South will emerge as a world trading force, driven by the powerhouses of India and Southeast Asia. South-South trade will also surge.
- Trade growth between the European Union and China will stall, as the bloc becomes more dependent on long-standing economic partners like the US and Japan, together with emerging markets such as India, Turkey and Africa.
- The incoming Trump administration in the US will significantly increase the magnitude of trading shifts.
The report said that the period of relative stability and multilateralism that followed the end of the Cold War was now being replaced by a multipolar era, characterised by rising regional powers, changing alliances, economic nationalism and national security. “We expect each of these trends to become more pronounced over the next decade,” the research noted.
It advised business leaders to pay close attention to both the risks and opportunities created from evolving geopolitical shifts, warning that the ensuing re-alignments would inevitably change supply chains and business strategies.
The BCG analysis focussed on the main areas where they expect to see major trade shifts over the coming decade:
North America – strength based on regional collaboration
The close trade relationship between the US, Mexico and Canada (underpinned by the USMCA Agreement), reinforced by years of reshoring, nearshoring and friendshoring has turned the region into a stronghold. In particular, reducing reliance on Chinese imports is contributing to North American economic growth. BCG predict that annual US/Mexican trade will increase by $315 billion by 2033—representing a CAGR of 4%; US–Canada trade will grow by $147 billion, with company supply chains serving North American markets shifting further towards the region.
China – moving closer to Emerging Markets
Although China’s trade with the US and the EU is slowing, it’s heading in an opposing direction with much of the rest of world. By 2033, BCG sees annual two-way trade with the West contracting by $221 billion – equating to an average annual decline of 1.2%. But the $159 billion decline in annual US–China trade could be more acute should the Americans dramatically raise tariffs on Chinese goods.
In contrast, BCG analysts project that China’s trade with the Global South will swell to $1.25 trillion by 2033, representing a CAGR of 5.9%. China’s geopolitical desire is to lessen its economic dependence on the West and bolster its ties with influential emerging markets. Meanwhile, China’s trade within BRICS+ is projected to account for 44% of China’s total forecast trade growth over the next decade.
China’s trade relationship with Russia is also projected to increase significantly – with annual bilateral trade growing by $269 billion by 2033 (6.3% CAGR).
Global South – a growing force
The Global South is noted by researchers for being the least recognised but potentially one of the most important regions of development in global trade influence. This bloc of 133 emerging nations makes up 62% of the world population, around 30% of global trade and approximately 18% of global GDP.
“Global South nations are forming new trade alliances and partnerships that sidestep the US and the EU. This trend is part of a broader geopolitical realignment toward a multipolar world trade system that reduces the influence of—and dependence on—Western markets,” the report noted.
BCG also expects annual trade amongst Global South nations to expand by a projected $673 billion over the next decade.
ASEAN – in transition
ASEAN is emerging as a major player, both within the Global South and with the rest of the world. According to the report, the region has been one of the major beneficiaries of production shifts that have been driven by geopolitics, exemplified by trade tensions between the US and China. As the region’s manufacturing capabilities improve, combined trade of the ASEAN nations is projected to grow 3.7% annually over the next decade.
Researchers see ASEAN’s trade relationship with China growing to $558 billion in 2033 (5.6% annually), underpinned in part by heavy Chinese investment in the region.
India – looking at broader-based growth
The emergence of India within the Global South is now a major factor, based around its policy of seeking favourable relations with the majority of the world’s leading economies. BCG projects 6.4% CAGR in India’s total trade through to 2033, reaching $1.8 trillion annually, which roughly equates to its burgeoning growth in GDP. One key element of this success is due to India’s growing popularity as a production base for companies looking to switch supply chains away from China.
The country’s expansion in trade will be widespread. Of significance, annual trade with the US is set to more than double over the next decade, to $116 billion in 2033. Researchers also forecast that India’s trade with the EU, ASEAN and Africa will increase by around 80% over the next decade, to nearly double with Japan and Mercosur nations and more than triple with Australia and South Korea. Trade with Russia is also likely to leap ahead, with India importing cheaper Russian hydrocarbons. Trade growth with China, however, is likely to soften, due to economic unease between the two countries.
EU – competitiveness is the top priority
According to the report, the 27-nation bloc’s future trade prospects have been dented by geopolitical tensions, energy price security concerns and a focus on values-based trade. Researchers predict that trade with China will stagnate over the next decade, resulting from new barriers such as the recently announced tariffs on imports of electric vehicles. Trade with Russia, severely impacted by the EU’s stance regarding the Ukraine war, is likely to drop by around $106 billion by 2033, if the conflict continues.
On a brighter note, the report projects that total trade between the EU and other nations will continue to grow by 2% annually through to 2033. In particular, trade with the US is forecast to grow by $303 billion over the next ten years, on the back of US LNG imports to Europe. Acceleration of trade with India, Turkey and Africa is also on the cards. Meanwhile, the EU’s recent deal with Mercosur should boost its trade with South America, whilst North Africa is predicted to become an important location for nearshoring manufacturing supply chains. The wider African continent also provides the EU with access to energy and minerals necessary for the green transition.
Need for business leaders to adapt to the changing landscape
The BCG analysis also identified five key imperatives for business leaders to successfully navigate the changes in geopolitics.
- Developing resilient and transparent supply chains – meaning companies should seek to broaden their horizons in their sourcing strategies by spreading their supplier networks.
- Adapting to changing geopolitical landscapes by being more flexible and aware of external influences.
- Increasing visibility within growth markets, with special emphasis on the Global South, in order to capture emerging opportunities and gain a competitive edge.
- Embracing nearshoring strategies that provide lower cost, a sound business climate, resilience advantages and a reduction in carbon footprint.
- Moving away from a one-size approach and tailoring strategies to regional requirements.
