Trade reconfiguration continues along geopolitical lines, this update with 2024 data shows.
Trade relationships are continuing to reconfigure, and changing geopolitics is a major reason. The United States has continued to shift trade away from China and toward other economies such as Mexico and Vietnam. In some cases, this is due to these economies forming an intermediate step in trade flows between China and the United States. European economies have moved away from trade with Russia and increased trade with other partners, notably the United States. Developing economies, rather than advanced ones, now account for the majority of China’s imports and exports. Economies such as the Association of Southeast Asian Nations (ASEAN), Brazil, and India continue to strengthen trade ties across the geopolitical spectrum.
In view of widespread talk about friendshoring, nearshoring, decoupling, and derisking, the McKinsey Global Institute has been monitoring shifting trade patterns closely. In a previous report, we found evidence of trade reconfiguring toward geopolitically closer partners. This is an update, examining 2024 data for the economies represented by ASEAN, Brazil, China, Germany, India, the United Kingdom, and the United States. The pattern of reconfiguration has continued, but its character and pace differ among major economies.
Economies connect through trade, but in different ways
Trade binds economies around the world. Every major region relies on imports for more than 25 percent of its consumption of at least one type of critical resource, manufactured good, or service (Exhibit 1). And even in sectors for which a region is a net exporter, it may still be dependent on imports for many crucial products. For example, while the United States is a net exporter of nonfuel minerals in aggregate, it relies on imports for many critical minerals such as rare earth metals. The US Critical Minerals List includes 50 minerals, and for about 30 of them, imports supply more than 75 percent of US annual consumption.
Although all economies engage in trade, each has its own distinct trade footprint. We analyze the changing geometry of global goods trade using four measures: trade intensity, geographic distance, a measure we have developed of “geopolitical distance”, and import concentration. These metrics provide valuable insights into the unique trade characteristics of different economies.
Economies vary in how much they trade in comparison to their size; this is their trade intensity. Economies also vary in their patterns of trade partners in both where they are, or geographic distance, and how aligned they are on global issues, or geopolitical distance. Finally, economies differ in how broad or narrow their network of supply relationships is.
Trade occurs around the globe between partners with different geopolitical stances. In our previous report, we found that some of the world’s largest trading economies do a great deal of business with partners that are at the opposite end of the geopolitical spectrum.
China, the largest trading economy in the world, trades more with geopolitically distant partners than any other economy. It trades extensively with the Europe 30, Japan, South Korea, and the United States; in combination, these economies accounted for about 40 percent of China’s total goods trade in 2023 (Exhibit 3).
Germany and Russia are also examples of economies at opposite ends of the geopolitical scale, but they used to trade a great deal with each other. Notably, prior to Russia’s invasion of Ukraine in 2022, Germany relied heavily on Russian energy resources—and it had to engineer a swift reconfiguration after the war began.
Some trade has continued to reconfigure along geopolitical lines, with recent shifts varying by economy
The most significant ongoing shift in trade patterns is a fall in the average geopolitical distance of trade. This measure declined by about 7 percent between 2017 and 2024, a period that witnessed ongoing trade tensions between the United States and China as well as Russia’s invasion of Ukraine. Economies at each end of the geopolitical spectrum have been trading less with one another: China, Germany, and the United States have seen sharp reductions in the geopolitical distance of trade. However, not all economies are realigning their trade along geopolitical lines. As in our previous report, the geopolitical distance of trade among mid-aligned economies, including ASEAN, Brazil, and India, was stable or increased.
The average geopolitical distance of trade fell from a high of about 3.5 in the early 2010s to 3.1 in 2023. A geopolitical distance of 3.1 is approximately the distance between the United States and Türkiye or between Russia and Saudi Arabia by our measure—the scale runs from zero to ten. In 2024, the average geopolitical distance of trade persisted at this lower level but did not substantially contract further.
By contrast, the average geographic distance of trade has been climbing—very slowly, but steadily—by about 10 kilometers each year over the past decade. This appeared to continue through 2024. The average distance a dollar of trade now travels sits at about 5,200 kilometers, roughly the distance between London and Boston or between Singapore and Tokyo. Large economies recorded stable geographic distances of their trade through 2024. Nearshoring does not yet appear to be happening on a global scale.
Global import concentration—that is, the breadth of trading relationships an economy relies on for each of the goods it imports—also remained stable, with no overall trend toward diversification, but patterns vary. For larger trading and more developed economies such as China, Germany, and especially the United States, sourcing patterns appear to be diversifying. For economies including ASEAN, Brazil, and India, import concentration trended upward, often due to deepening ties to China
Although markers of import concentration have remained stable in recent years, concentration is a key feature of the global trade network. Our previous research found that about 10 percent by value of global trade is “globally concentrated”—that is, three or fewer economies provide more than 90 percent of the globally traded supply of a particular product.6 Examples of globally concentrated products range from iron ore (mainly supplied by Australia and Brazil) to laptops and smartphones (largely supplied by China).
Trade in globally concentrated products intersects with geopolitical distance. Nearly 20 percent of global goods trade is between more geopolitically distant economies, defined as pairs of economies that are more than eight points apart on the zero-to-ten scale of geopolitical distance. Examples of geopolitically distant economy pairs include China and the United States, and Germany and Russia. However, zooming in on just globally concentrated products, almost 40 percent of trade in these goods is between geopolitically distant economies. Examples of globally concentrated products that traverse wider geopolitical distances include permanent magnets, which can be used to power electric motors and are mainly supplied to the global market by China, and machinery for manufacturing semiconductor wafers, which is mainly supplied to the global market by Japan. Globally concentrated products may be those for which finding an alternative supplier is not easy, at least in the near term.
Shifting the fundamental geography of import dependence happens slowly. For example, while the United States has substantially reduced the share of its manufactured goods imports coming from China in recent years, the share of US imported value added that originates in China may not have fallen as much (Exhibit 6). This could occur, for example, if a product largely produced in China is shipped to a third country for final assembly before being exported to the United States. This is partly what we observe in the case of ASEAN’s new trade dynamics with the United States.
