Take a shipment that once travelled directly from a Chinese factory to an American buyer. Put a tariff in its path and the obvious assumption is that the journey ends. Production comes home, imports fall, and one small piece of globalisation is undone.
But trade rarely behaves so neatly.
The American buyer may turn to Vietnam or Mexico, while the Chinese producer finds customers elsewhere and components take a more circuitous route to the same final market. Trade becomes messier, costlier and more political, but the economic relationship itself does not necessarily disappear.
That leaves a harder question hanging over President Trump’s tariff-driven policies. After decades of deeper economic integration, could this more aggressive tariff strategy mark the beginning of a trend towards deglobalisation?
The latest evidence suggests reconfiguration rather than retreat. Trade is becoming more fragmented and uneven. This much is true. However, the geography of production and the distribution of its costs and benefits continue to shift.
The Map Is Just Rerouting
The clearest consequence of the tariff shift is visible on the map.
U.S. imports from China have declined as tariffs have made direct sourcing more expensive. If we stopped there, the story would look like a straightforward retreat from global integration and a proper scolding of an economic superpower. But the IMF’s External Sector Report 2026 suggests that much of the missing Chinese trade has simply been replaced by imports from elsewhere. At the same time, Chinese exporters have redirected goods toward other markets, including ASEAN economies and the E.U.[1]
The U.S. trade deficit offers another test. Despite higher tariffs, it stood at 3.1% of GDP in 2025, up slightly from 3.0% in 2024. That is hardly the signature of a globally disengaged economy…
Similarly, research by economists Fajgelbaum and Khandelwal concludes that tariffs have clearly diverted trade away from China. Whether they will produce large-scale reshoring, a lasting reduction in the deficit or even friend-shoring remains much less certain.[2]
The important distinction, therefore, is that rerouting supply chains more simply changes the geography of globalisation. It does not inherently dismantle the system itself.
The Bigger Change Is Who Pays
Tariffs also expose what aggregate economic statistics often hide, since an economy can absorb a policy change reasonably well even as households and businesses bear much sharper costs.
Fajgelbaum and Khandelwal estimate that roughly 90% of the tariffs were passed through to tariff-inclusive prices paid by U.S. importers. Yet their estimated net short-run welfare effect ranges from a loss of 0.13% of GDP to a gain of 0.10%.
Those numbers may appear contradictory. They are not.
Tariffs create winners and losers at the same time. Consumers and importers face higher costs, while governments collect revenue and some domestic producers gain protection. The aggregate effect may look modest even when the underlying gains and losses are substantial.
Federal Reserve research brings the household consequences into sharper focus. Its study of the 2025 tariffs estimates retail-price pass-through of roughly 15-20% and finds that households reduce spending on affected goods substantially as prices rise. Consumers trade down, shifting toward cheaper alternatives and protect spending on necessities. Lower-income households bear a disproportionate welfare burden because a larger share of their budgets is exposed to essential consumption.[3]
That changes the political meaning of the globalisation debate.
For years, debates over globalisation focused on whether freer trade increased national income. And tariffs shift attention to a harder issue of distribution, forcing closer scrutiny of who captures the gains and who bears the costs of adjustment.
A policy can produce a small number in a GDP table while still meaning noticeably higher prices for a family already watching every trip to the supermarket. Aggregate resilience and household pain can exist at the same time.
From Rules-Based to Strategically Managed
The third change is less visible at the checkout counter, but it may prove more consequential.
Trade policy is increasingly being treated as an instrument of national strategy. Tariffs are no longer discussed only in terms of protecting industries or correcting trade imbalances. They have become tools of bargaining, supply-chain security, industrial policy and geopolitical competition.
That does not mean the multilateral trading system has disappeared.
According to the WTO’s World Trade Report 2026, around 72% of global merchandise trade still takes place under most-favoured-nation tariff terms. Beneath the increasingly noisy politics of tariffs, the old trading architecture continues to carry a remarkable amount of commercial weight.[4]
The WTO’s own modelling helps show what true fragmentation could look like. Across a couple hypothetical “geo-fragmented world” scenarios (with one being quite extreme), global GDP ends up roughly 5-7% below the baseline and exports roughly 18-27% lower.
These are scenarios, not forecasts. And while their usefulness lies precisely there, they show that today’s trading system, however strained, remains far from complete economic fragmentation.
The IMF’s experience in 2025 tells a similar story. Global growth reached 3.4%, stronger than the 2.8% the IMF had projected originally. And they attributed some of that resilience to tariffs ultimately being lower than initially announced, alongside supportive fiscal conditions and investment in artificial intelligence. Tariffs and policy uncertainty still created headwinds, but they did not bring global commerce to a halt.[5]
What is emerging, then, is a hybrid system. Multilateral rules still matter, but they increasingly coexist with industrial subsidies, strategic tariffs and governments that care as much about the nationality and location of production as they do about its price.
A Different Globalisation
Trump’s tariffs have not unwound globalisation. Instead, they have changed how it is organised and how governments think about economic dependence.
Trade has moved rather than disappeared, while firms continue to rely on international production networks despite greater political pressure. Much of that commerce still runs through multilateral rules, even as governments use tariffs more aggressively to shape where and how trade takes place.
The emerging system is more interventionist and less trusting, but it remains deeply interconnected and still depends on cross-border exchange. That is the shift tariffs have accelerated.
[1] International Monetary Fund, Research Department. External Sector Report 2026: Amid Rising Imbalances, the Case for Rebalancing. Washington, DC: IMF, 2026. https://www.elibrary.imf.org/display/book/9798229052863/CH001.xml.
[2] Fajgelbaum, Pablo D., and Amit Khandelwal. “Tariffs in 2025: Short-Run Impacts on the U.S. Economy.” NBER Working Paper no. 35064, April 2026. https://doi.org/10.3386/w35064.
[3] Hacıoğlu Hoke, Sinem, and Leo Feler. “Paying More and Buying Less: 2025 Tariffs and U.S. Household Spending.” Finance and Economics Discussion Series (FEDS), August 2026, revised August 2026. https://www.federalreserve.gov/econres/feds/paying-more-and-buying-less-2025-tariffs-and-us-household-spending.htm.
[4] Hill, Johanna, Robert Staiger, et al. World Trade Report 2026: A Critical Juncture for the World Trading System. World Trade Organization, 2026. https://www.wto.org/english/res_e/publications_e/world-trade-report-2026_execsum_e.htm.
[5] International Monetary Fund. World Economic Outlook: Global Economy in the Shadow of War. Washington, DC: IMF, April 2026. https://www.imf.org/-/media/files/publications/weo/2026/april/english/text.pdf.
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