Trade fragmentation: new rules of the economy

Trade Fragmentation: The New Rules of the Economy

September 24, 2025

The Shift from Globalisation to Fragmentation

Globalisation once promised seamless integration of markets. However, in 2025, businesses
face a different reality: trade fragmentation. Rising tariffs, geopolitical rivalries, and shifting
regulations are reshaping the global economy.

The European Commission (2023) warns that growing trade fragmentation and higher policy
uncertainty could result in long-term output losses.

Global Trade at a Turning Point

For decades, globalisation has fueled unprecedented growth. Trade as a share of global GDP
expanded rapidly between 1990 and 2008. However, since the global financial crisis, this
trend has slowed.

Moreover, recent shocks, like the pandemic, the war in Ukraine, and U.S.-China tensions,
have accelerated fragmentation.

Figure 1. Global Trade as % of GDP (2000–2023)

The EU is particularly exposed because of its reliance on open markets. As a result,
disruptions directly affect competitiveness, investment, and employment.

The Rise of Trade Barriers

One of the clearest signs of fragmentation is the surge in trade restrictions. According to the
OECD, new barriers such as tariffs and export controls have multiplied in recent years.

Figure 2. Rising Trade Restrictions Worldwide (2018–2023)

These measures reflect growing economic nationalism. However, they also risk
undermining global growth.

The OECD and the European Commission estimate that unchecked fragmentation could reduce
global GDP by 0.2% to 7% in the long run. In more severe cases, involving technological
decoupling, losses could reach 8–12%.

Unequal Impacts Across Economies

The effects of trade fragmentation are not evenly distributed. Advanced economies with
diversified markets tend to be more resilient. In contrast, emerging markets face greater
risks because they depend heavily on global demand.

Figure 3. Estimated GDP Impact of Trade Fragmentation by 2030

The European Commission (2023) projects that the EU could lose over 1% of GDP by 2030,
while emerging markets may suffer losses exceeding 2%.

How Businesses Must Adapt

Trade fragmentation is not just a macroeconomic trend. It has direct consequences for
corporate strategy. Companies must now operate under new rules of the economy:

Resilient Supply Chains: Diversify suppliers to avoid overreliance on single regions.
Regionalization of Operations: Localize production to limit geopolitical exposure.
Geopolitical Risk Management: Incorporate political risk into trade decisions.
Compliance and Transparency: Strengthen ESG and data governance to maintain
trust and market acces
Strategic Foresight: Use scenario planning and stress testing to prepare for sudden
shocks.

As the World Economic Forum (2025) notes, competitiveness will increasingly favor firms
that embrace agility, innovation, and proactive adaptation.

Looking Ahead: Risks and Opportunities

Trade fragmentation represents one of the most profound structural shifts since the end of
the Cold War. On the other hand, it creates risks, it also opens opportunities for companies
that adapt early.

For European businesses, the path forward is clear: