Geopolitics Practice, McKinsey Global Institute, and Strategy & Corporate Finance Practice

A new trade paradigm:

How shifts in trade corridors
could affect business
Trade routes face high variability in growth under different scenarios, with one-third
of global trade potentially exposed to volatility by 2035.
This article is a collaborative effort by Jeongmin Seong, Olivia White, Shivanshu Gupta, Asutosh Padhi, Brajesh Chhibber,
Jeffrey Condon, and Tiago Devesa, representing views from the Geopolitics Practice, McKinsey Global Institute, and
the Strategy & Corporate Finance Practice.

June 2025
At a glance
— The global trade system is in flux. Since 2017, economies have traded less with
geopolitically distant partners. Recent announcements on tariffs, trade, and industrial policy
have deepened uncertainty.

— Trade will grow by $12 trillion by 2035 in a baseline scenario. The trade increase would
boost today’s global trade value by about 35 percent, to $45 trillion. In a diversification
scenario (in which companies seek new sources of supply), about $1 trillion of that growth
might not be realized. In a fragmentation scenario (in which geopolitically distant economies
trade less), about $3 trillion of it could be lost.

— Depending on the scenario, over 30 percent of global trade in 2035 could swing from
one trade corridor to another. That swing is the sum of the differences between the highest
and lowest corridor-level values across the scenarios we examine. Fragmentation, pushed by
heightened tariff levels, could drive the largest shifts, especially in critical sectors.

— Trade corridors between emerging economies could be among the safest bets. Of
today’s 50 largest corridors, 16 would grow strongly, even in a fragmentation scenario, while
nine corridors—primarily linking advanced economies to China and Russia—would shrink
sharply. The rest fall somewhere in the middle.

— Trade in electronics could see the biggest shifts, followed by textiles and machinery.
These manufacturing value chains bridge geopolitically distant economies, so they’re more
susceptible than others to fragmentation. Resources across energy and mining could see
substantial downstream effects.

— Businesses can get ahead of changing trade dynamics. By understanding potential

scenarios and then establishing value creation theses to guide actions, firms can drive
strategic and organizational changes to capture new opportunities, as well as to buffer
against a downside.

A new trade paradigm: How shifts in trade corridors could affect business 2
About that grinding sound you’ve been hearing: Not to alarm you, but that’s the tectonic plates
of global trade shifting. Every business leader we speak with confirms that the current trade
environment is the most uncertain in their lifetimes. Between momentous tariff hikes (and cuts
and litigation), the return and spread of industrial policy, rising geopolitical tensions, and all the
other disruptions of this digitizing, pandemic-scarred age, the system is in massive flux.

The unpredictability is forcing leaders to question long-held assumptions about where and
how they operate. Global business systems—the footprint of factories, suppliers, warehouses,
distribution centers, and the entire apparatus of making things and getting them to market—
have long since been optimized for efficiency. Now, their owners are wondering if the systems will
still work and what the new costs will be.

In a moment like this, it’s easy to get lost in the headlines. But the real task is to understand the
deeper, structural shifts at play. Trade patterns have significant inertia; they generally evolve
slowly. Some signs of such an evolution have been evident since 2017, as big trading economies
have adapted to shifts in geopolitics. These new geopolitical dynamics add an unpredictable
element to the steadier forces of economic growth (see sidebar “Geopolitical distance”).

Secular changes in trade patterns can be detected through shifts in trade corridors—the
connections between countries to exchange goods, services, and resources. Our research finds
that in a baseline scenario with tariffs at recent historical levels, global trade of goods, services,
and resources would grow by about $12 trillion in real terms to $45 trillion by 2035, up from
$33 trillion in 2024.

We also examine two out of many possible scenarios, both intended to bound uncertainty
rather than to describe a precise future. In a fragmentation scenario, trade relationships
deteriorate, and tariffs on most goods rise to 10 percent, with tariffs on critical goods traded
between many advanced economies and China and Russia rising by up to 60 percent. Should
that scenario unfold, about $3 trillion of the nearly $12 trillion in growth would be lost. On the
other hand, in a diversification scenario, in which businesses prize resilience and diversify their
suppliers, about $1 trillion in potential trade growth would be foregone.1 (For more, see sidebar
“Scenario assumptions.”)

The unpredictability of the global

trade environment is forcing leaders
to question long-held assumptions
about where and how they operate.

1
Many alternative scenarios are possible. For example, this work focuses on the effects of trade policy on trade, but does not
consider other impacts such as investment, balance sheet effects, or productivity changes. For a discussion of these topics,
please see our Global Balance Sheet work.

A new trade paradigm: How shifts in trade corridors could affect business 3
Geopolitical distance

In our previous research,1 we developed procedural or repeated, we included only in the middle. We conducted robustness
an analytical measure of geopolitical votes designated as “important” by the US checks across various years between 2005
position, using votes in the UN General Department of State. and 2022 and found that the geopolitical
Assembly between 2005 and 2022 as positions of many economies remained
By this measure, Europe, Japan, South
a proxy for alignment on global issues. relatively stable according to our measure.
Korea, and the United States sit near one
We used principal component analysis Yet we note that the metric is retrospective
end of a spectrum, while both China and
to map each voting country on a one- and does not anticipate potential shifts
Russia sit closer to the other end (exhibit).
dimensional voting spectrum ranging in geopolitical alignment, which may be
Most emerging markets sit somewhere
from zero to ten. Since many votes are dynamic and evolving.

Web <2025>
<TariffTradeShifft>
Exhibit
Exhibit <Sidebar> of <8>

Economies hold different geopolitical positions.

Geopolitical position based on UN General Assembly voting patterns,1 2005–22, 0–10 scale

North America Latin America and the Caribbean Circle size =

Europe Middle East and North Africa total trade, 1
Asia–Pacific Sub-Saharan Africa 2022,
Other Europe and Central Asia China $ trillion 3
6

Germany South Korea Chile Colombia Saudi Arabia South Africa Indonesia Iran
Canada Japan Türkiye Mexico Brazil UAE Philippines India Russia

US China

0 1 2 3 4 5 6 7 8 9 10
CLOSE DISTANT

¹Calculated by principal component analysis of UNGA voting records in 2005–22, reduced to a 0–10 scale. To exclude procedural votes, a subset of UNGA votes
are considered. For 2005–21, these exclude votes not designated as “important” in “Voting practices in the United Nations,” US Department of State. For 2022,
votes addressing the war in Ukraine are included.
Source: Geopolitics and the geometry of global trade, McKinsey Global Institute, Jan 2024

McKinsey & Company

1
“Geopolitics and the geometry of global trade,” McKinsey Global Institute, January 17, 2024.

Given the size of the global economy (roughly $111 trillion according to IMF data), a difference of
a couple of trillion dollars in trade growth may not seem dramatic. But when we zoom in to the
level of individual trade corridors, the stakes become much clearer. Each could grow significantly
faster or slower depending on which scenario plays out. When we add up the swings across all
corridors, the total value at stake—the difference between maximum and minimum value in each
corridor—could amount to 31 percent of total projected trade in 2035, or $14 trillion.2

2
“Trade value at stake” reflects the full range of potential disruption or opportunity across more than 400 trade corridors and
40 sectors in our model. For each corridor–sector pair, we calculate the difference between the highest and lowest projected
trade values in 2035 across the baseline, fragmentation, and diversification scenarios. The global trade value at stake is the
sum of these differences, capturing shifts that may offset each other in the aggregate but are critical to understanding the
true scale of change.

A new trade paradigm: How shifts in trade corridors could affect business 4
Scenario assumptions

We explore three potential scenarios for long-term trends in productivity and labor action by companies across sectors
what global trade of goods, resources, and force growth and incorporate recent to diversify their sources of supply.
services could look like in 2035. They were trends in private consumption, government Specifically, we consider a real-world
developed using the Global Trade Analysis spending, and business investment. 3 analysis of the flow of product-level goods
Project, a widely employed, computable to sketch out the level of reconfiguration
In a fragmentation scenario, we analyze the
general equilibrium model. For more required to diversify trade in goods such
result of trade frictions across countries
details on modeling and limitations, see that no product has a geographic import
that are geopolitically distant, using our
the McKinsey Global Institute (MGI) report concentration greater than 3,000 as
geopolitical position metric. This scenario
“Geopolitics and the geometry of global measured using the Herfindahl–Hirschman
incorporates growth of substantial trade
trade.”1 Each of the three scenarios allows Index—a threshold generally indicating
barriers (60 percent tariffs on critical
us to better understand possible dynamics that 90 percent of imports come from
goods and services, and 20 percent for
in global trade by bounding uncertainty; just three or fewer economies. Research
others) between economies that sit at
they do not attempt the impossible task of from MGI has shown that approximately
opposite ends of the geopolitical spectrum,
identifying the future state of trade with 40 percent of global trade falls under
notably between the advanced economies
any precision. this definition of “concentration.”5 That
and both China and Russia. 4 It also includes
research also highlights two different forms
In a baseline scenario, we analyze how more moderate friction (10 percent tariffs
of concentration. In about one-quarter
trade would continue to evolve according on critical goods and services) between
of these cases, the number of suppliers
to economic fundamentals, such as emerging markets that sit in the middle
across the world is truly limited—what we
the projected growth in population and of the geopolitical spectrum and both
define as “globally concentrated.” In the
economics of different countries, and no many advanced economies and China.
other three-quarters, companies have
meaningful new trade barriers are erected The sort of trade frictions that this model
alternative sources of supply but have
relative to recent historical levels.2 In this approximates could arise through not
chosen a limited set of country partners
scenario, annual global GDP growth from only increasing tariffs but also controls on
for a range of reasons, including proximity
2025 to 2035 averages 2.7 percent. Annual imports and exports—industrial-policy
and historical relationships, indicating
GDP growth is taken to be 3.6 percent in actions that have raised trade barriers,
“economy-specific concentration” rather
China, 1.7 percent in the United States, particularly in some of the most critical
than global concentration. In these
and in Europe it ranges by country—for traded goods.
products, trading relationships could be
example, from 1.3 percent in Italy to 2.0
In a diversification scenario, we consider more readily diversified.
percent in France. These estimates reflect
how trade might shift through widespread

1
“Geopolitics and the geometry of global trade,” McKinsey Global Institute, January 17, 2024.
2
Specifically, trade barriers are assumed to stay constant at 2022 levels.
3
For more, see “In a moment of tariffs, can the world find balance and trust to thrive?,” McKinsey, May 2, 2025, and “The future of wealth and growth hangs in the balance,”
McKinsey Global Institute, May 24, 2023.
4
There is no single cross-country definition of what constitutes a “critical” product. To approximate criticality of trade flows, we undertook a bottom-up assessment of
product criticality for around 5,000 goods. We reviewed these for overlap with sources such as the United States’ Commerce Control List and list of Advanced Technology
Products, the European Union’s strategic dependency review and Critical Raw Materials Act, and China’s 14th Five-Year Plan, supplemented by expert consultation. These
sources also informed assessment of the criticality of services trade.
5
“The complication of concentration in global trade,” McKinsey Global Institute, January 12, 2023.

In the following, we examine these three scenarios and identify the changes that could come to
trade corridors and sectors. Of course, these are only three potential futures among many, and
at time of writing, trade tensions create uncertainty about both the future of the macroeconomy
and of the exact profile of trade barriers for the next ten years. Nonetheless, these scenarios
illustrate potential outcomes of fundamental dynamics that have been playing out in global trade
for the past decade. We will conclude with some strategies companies can use to anticipate the
changes and seize the benefits.

A new trade paradigm: How shifts in trade corridors could affect business 5
Trade growth by corridor
Even before April 2025, global trade had been undergoing structural reconfiguration. Over the
past many years, trade has stretched across ever greater geographic distances. But since 2017,
it has increasingly featured exchanges among more geopolitically aligned economies, resulting
in a measurable decline in what we call “geopolitical distance” (see sidebar “Geopolitical distance”).

Today, the global trade system sits at the cusp of even more change. Patterns of growth through
2035 across scenarios and geographies differ markedly (Exhibit 1). 3 In the baseline scenario,
trade corridors connecting emerging markets with each other and China would grow at 4 to
5 percent annually on average over the next decade, outpacing the global average growth
(2.7 percent). This higher growth would spring from underlying faster economic growth in these
markets and their potential for additional integration as both markets and suppliers of the
Chinese economy. On the other hand, the currently much larger corridors running to and from
advanced economies would generally grow more slowly, about 2 percent per year.

Web <2025>
<TariffTradeShifft>
Exhibit 1
Exhibit <1> of <8>

Trade growth varies across scenarios and geographical groupings.

Growth in global trade corridor group1 under Baseline Circle size = 1
different scenarios,2 2022–35, % CAGR Diversification trade corridor
5
Fragmentation 2022, $ trillion
Baseline trade-weighted average growth rate
14
8 8
Advanced Emerging China to Advanced
economies markets to advanced economies
6 to China advanced economies to advanced 6
economies economies
4 4

2 2

0 0

–2 –2

–4 –4

China to Emerging Emerging Advanced

–6 –6
emerging markets to markets economies
markets emerging to China to emerging
–8 markets markets –8
1
Corridors are grouped as advanced economies (US, Canada, Europe, Australia/New Zealand, Japan, South Korea), China (shown separately), and emerging markets.
²Baseline assumes stable trade and continued global growth. Fragmentation simulates rising trade frictions, with tariffs increasing by 60% for critical goods and
services and 20% for noncritical goods and services between geopolitically distant partners. Geopolitically neutral economies face moderate frictions, modeled as
10% tariffs on critical traded goods and services. Diversification assumes countries and firms proactively broaden sourcing bases to three or more suppliers, reallo-
cating trade to reduce geographic import concentration across all sectors without explicit consideration of geopolitical position.
Source: McKinsey Global Trade Model; McKinsey Global Institute analysis

McKinsey & Company

3
For granular corridor analysis, we use 2022 as the base year and all growth rates are real.

A new trade paradigm: How shifts in trade corridors could affect business 6
In the two alternative scenarios, fragmentation and diversification, patterns of growth would differ.

The fragmentation scenario could lead to the biggest changes in growth rates. Trade between
China and advanced economies would drop significantly, while trade among advanced
economies would speed up, compared with the baseline. Notably, trade between China and
emerging economies would prove resilient, growing even faster under a fragmentation scenario
than a baseline scenario, as China would seek out new partners.

In the diversification scenario, trade between China and emerging economies would grow more
slowly than the baseline, as both sides seek to reduce mutual concentration—emerging markets
by shifting away from a dependence on China’s manufactured goods, and China by diversifying
its suppliers of resources. Similarly, trade from advanced economies to China would also
decline, as China reduces reliance on concentrated import categories such as resources (from
Australia, say) and machinery and equipment (from Germany and Japan, for example). Conversely,
China’s exports to advanced economies remain relatively stable. This reflects a shift in China’s
trade mix—exporting less in concentrated sectors like electronics, while expanding in less
concentrated areas such as transportation machinery. As a result, China would likely maintain its
role as a key exporter in the global economy. A further point of interest is how emerging markets
are positioned. Conventional wisdom suggests that emerging markets would benefit from a
diversification scenario, but our model shows that this isn’t necessarily the case. As countries
diversify, they often turn to the next-best suppliers. Emerging markets already integrated into
these networks stand to gain, but those outside remain on the sidelines. As a result, we see
limited upside for growth in emerging-market exports relative to the baseline.

Looking deeper into the regional groupings, in the baseline scenario, 48 of the 50 largest
trade corridors would see continued growth (Exhibit 2). Yet the corridors within each group
vary considerably. For example, while corridors between advanced and emerging economies
generally show moderate growth, some (such as the corridor linking Europe and India) could
enjoy some of the fastest trade growth of any corridor (owing to India’s fast economic growth
rate and the relative underdevelopment of that corridor today); while others such as US–Mexico
could see only modest increases (owing to the already highly saturated level of trade between
these economies).

A new trade paradigm: How shifts in trade corridors could affect business 7
Web <2025>
<TariffTradeShifft>
Exhibit 2
Exhibit <2> of <8>

Trade corridors linking China to emerging markets grow faster than the
global average in our baseline scenario.

Growth in top 50 global trade corridors,1 China-linked Circle size = 1

baseline scenario,2 2022–35, % CAGR Europe-linked trade corridor
US-linked 2022, $ trillion
Baseline trade-weighted average growth rate Other 9
7 7
China>>India ASEAN>> Eur⁵>>India
ASEAN India>>Eur
6 6
ME>>India ASEAN>>
China>>ME³
China
5 5
Eur>>ME
Eur>>China
4 4
China>> China>>Eur
Eur>>Eur
ASEAN⁴
3 ME>>China 3

2 2
ME>>ASEAN
China>>US
1 US>>Eur 1
US>>China
Mex>>US
0 0
US>>Mex⁶
China to Emerging Emerging Advanced Advanced Emerging China to Advanced
–1 –1
emerging markets to markets economies economies markets to advanced economies
markets emerging to China to emerging to China advanced economies to advanced
markets markets economies economies
1
Corridors are grouped as advanced economies (US, Canada, Europe, Australia/New Zealand, Japan, South Korea), China (shown separately), and emerging
markets. Corridor names indicate exporter and importer. ²Baseline assumes stable trade and continued global growth. Fragmentation simulates rising trade
frictions, with tariffs increasing by 60% for critical goods and services and 20% for noncritical goods and services between geopolitically distant partners.
Geopolitically neutral economies face moderate frictions, modeled as 10% tariffs on critical traded goods and services. Diversification assumes countries and
firms proactively broaden sourcing bases to three or more suppliers, reallocating trade to reduce geographic import concentration across all sectors without
explicit consideration of geopolitical position. ³Middle East. ⁴Association of Southeast Asian Nations. ⁵Europe. ⁶Mexico.
Source: McKinsey Global Trade Model; McKinsey Global Institute analysis

McKinsey & Company

Under the fragmentation scenario, corridor growth would shift from a baseline scenario, in some
cases drastically (Exhibit 3). Three strategic categories of trade corridors emerge, primarily
based on how they perform in our fragmentation scenario: safe bets, which are resilient to the
fragmentation scenario we model; cautious bets, whose growth is positive across scenarios but
below average in a fragmentation scenario; and uncertain bets, which see their growth rates dip
into negative territory in at least one of the scenarios we considered.

A new trade paradigm: How shifts in trade corridors could affect business 8
Web <2025>
<TariffTradeShifft>
Exhibit
Exhibit <4>3of <8>

Under fragmentation, trade corridors exhibit divergent growth patterns.

Growth in top 50 global trade corridors1 under different Baseline Circle size =
scenarios,² 2022–35, by degree of certainty, % CAGR Diversification trade corridor 4
Fragmentation 2022, $ trillion
15
5 5
Baseline trade-weighted
average growth rate
4 4

3 3

2 2

1 1

0 0
Safe bet: Fast growth, even Cautious bet: Moderate Uncertain bet: Vulnerable
–1 under fragmentation growth in fragmentation to fragmentation –1

–2 –2

–3 –3

–4 –4

–5 –5
16 global trade corridors 23 global trade corridors 11 global trade corridors
28% of this category’s baseline 19% of this category’s baseline 76% of this category’s baseline
trade value is at stake trade value is at stake trade value is at stake
1
The top 50 global trade corridors are categorized into 3 groups based on their growth across scenarios. “Safe bets” are corridors that grow in all scenarios and
exceed average baseline growth, even under fragmentation. “Cautious bets” also grow consistently but fall below the global average baseline growth under a frag-
mentation scenario. “Uncertain bets” are those that shrink under at least one of the scenarios we considered.
²Baseline assumes stable trade and continued global growth. Fragmentation simulates rising trade frictions, with tariffs increasing by 60% for critical goods and
services and 20% for noncritical goods and services between geopolitically distant partners. Geopolitically neutral economies face moderate frictions, modeled as
10% tariffs on critical traded goods and services. Diversification assumes countries and firms proactively broaden sourcing bases to three or more suppliers, reallo-
cating trade to reduce geographic import concentration across all sectors without explicit consideration of geopolitical position.
Source: McKinsey Global Trade Model; McKinsey Global Institute analysis

McKinsey & Company

The scenario analysis indicates that there will be lots of motion in the top 50 corridors; some
corridors will gain from disruption, and some will lose. But how much trade would be affected? By
calculating the gap between the potential maximum and minimum trade values for each corridor,
we can quantify the uncertainty—or value at stake—in how fast or slow that corridor might grow.
Among the 16 safe-bet corridors and 23 cautious-bet corridors, the average value at stake of
trade value is 19 to 28 percent relative to the 2035 baseline. For example, for trade between
the Middle East and the United States, about 17 percent of the 2035 baseline value could be at
stake, since that corridor could grow substantially faster in a diversification scenario than in a
fragmentation one. For the 11 uncertain bets, the stakes are even higher, with about 76 percent
of trade value at risk on average. Sellers, buyers, financiers, and logistics firms active in these
corridors will want to carefully manage risks given the potential for volatility.

A new trade paradigm: How shifts in trade corridors could affect business 9
Strategic positions for multinationals
Bets on future trade have very different risk profiles. Some are safer than others; some carry
more upside potential in a fragmentation scenario.

Safe bets
These corridors grow in all scenarios and grow faster than the average baseline global growth
(2.7 percent) even in the fragmentation scenario (Exhibit 4). Safe bets include corridors
connecting China to emerging economies such as the Association of Southeast Asian Nations
(ASEAN) and India; intraregional trade in emerging markets; and trade between some major
advanced economies, such as Europe and the United States.

Web <2025>
<TariffTradeShifft>
Exhibit 4
Exhibit <5> of <8>

Safe bets are fast growing, even under a fragmentation scenario.

Safe-bet corridors
Growth in safe-bet trade corridors,¹ Trade value at stake¹ across safe-bet trade
under different scenarios,² 2022–35, % CAGR corridors, by value, % 2035 baseline trade value

China >> India Baseline China >> India 50

Europe >> India Diversification Europe >> India 28
Fragmentation
India >> Europe India >> Europe 26
Middle East >> India Baseline trade- Middle East >> India 12
weighted average
China >> Middle East growth rate China >> Middle East 49
China >> ASEAN³ China >> ASEAN 52
Gray circle size =
ASEAN >> China ASEAN >> China 29
trade corridor value
ASEAN >> ASEAN in 2022, $ billion ASEAN >> ASEAN 21
India >> US India >> US 20
1,100 650 250
Middle East >> China Middle East >> China 25
LatAm⁴ >> LatAm LatAm >> LatAm 16
Middle East >> Middle East Middle East >> Middle East 22
Canada >> US Canada >> US 20
Middle East >> ASEAN Middle East >> ASEAN 16
Europe >> US Europe >> US 21
Europe >> Japan Europe >> Japan 26
–2 0 2 4 6 8

CAGR, % Average at stake 28

1
Trade value at stake by corridor is calculated as the difference between the highest and lowest projected 2035 trade values across scenarios (baseline, frag-
mentation, diversification) for each sector within the corridor. These differences are then summed across all sectors and expressed as a share of the corridor’s
2035 baseline trade value. This reflects how much of a corridor’s trade is exposed to scenario-driven volatility. Values can exceed 100% when many sectors
within a corridor experience large swings across scenarios, since the metric reflects the total potential variation across all sector-level trades, not just the net
change in aggregate corridor trade.
²Baseline assumes stable trade and continued global growth. Fragmentation simulates rising trade frictions, with tariffs increasing by 60% for critical goods and
services and 20% for noncritical goods and services between geopolitically distant partners. Geopolitically neutral economies face moderate frictions, modeled
as 10% tariffs on critical traded goods and services. Diversification assumes countries and firms proactively broaden sourcing bases to three or more suppliers,
reallocating trade to reduce geographic import concentration across all sectors without explicit consideration of geopolitical position.
³Association of Southeast Asian Nations.
⁴Latin America.
Source: McKinsey Global Trade Model; McKinsey Global Institute analysis

McKinsey & Company

A new trade paradigm: How shifts in trade corridors could affect business 10
Some noteworthy safe bets include the following:

— Corridors connecting India and the world (for example, between India and the European
Union, from India to the United States, from the Middle East to India, and from China to
India). India features prominently among the safe bets; the five corridors cited all meet the
bar. They include India as either an exporter or importer with partner economies ranging from
Europe and the United States to the Middle East and China. The fast growth of the Indian
economy leads to expansion in many of its trade corridors, in particular those supplying
advanced economies. India’s rapid growth would also boost its imports of essential inputs
from advanced economies, such as machinery from Europe, leading to rapid growth in the
other direction. Imports from other emerging economies could also grow, albeit from a
smaller base—for example, energy from the Middle East.

— Corridors connecting China and other emerging economies (for example, between China
and ASEAN and between China and the Middle East). Corridors like those running from
China to Africa, ASEAN, and the Middle East accelerate their growth in the fragmentation
scenario. In this scenario, China would shift its exports away from advanced economies,
from which it’s geopolitically distant, and seek out new export markets. On the other hand,
trade flowing from emerging economies into China would remain about the same in a
fragmentation scenario as in the baseline; these corridors would retain but not increase their
fast growth rate. This happens because while emerging markets would account for a bigger
slice of all of China’s imports in this scenario, China’s slower growth rate would mean that it
imports less, making the overall pie smaller.

Today’s trade landscape is compatible with a deepening of these relationships. ASEAN is

growing trade with China to the point of becoming its largest trading partner—and vice versa,
especially as ASEAN economies integrate into existing Chinese value chains in sectors like
electronics or textiles. As for the Middle East, its trade profile is complementary to China’s,
which could create more opportunities for trade, since the Middle East is a large net importer
of many of the manufactured goods China produces, such as electronics and textiles. But this
doesn’t mean strengthened economic ties would be seamless. Increased Chinese imports
may be a boon for consumers but would create competitive pressure on local producers.

— Intraregional corridors in emerging markets. Emerging regions such as ASEAN, Latin

America, and the Middle East could also see intraregional trade growing above average
in all scenarios. The robust economic growth of these regions boosts trade in a baseline
scenario, and that growth is resilient to fragmentation and diversification scenarios, given
the absence of new trade barriers between these economies. Many of these economies are
already laying some of the groundwork for increased integration. Southeast Asian nations
are strengthening regional integration through initiatives such as the ASEAN Economic
Community and the Regional Comprehensive Economic Partnership (RCEP)—the largest
free trade agreement by GDP—which includes all of ASEAN as well as other Asian countries.
Some Middle Eastern countries are likewise boosting regional supply chains across energy,
construction materials, and services as part of efforts to diversify their economies.

— Corridors from Europe to geopolitically close advanced economies (for example, from
Europe to the United States and from Europe to Japan). Flows between Europe, the United
States, and advanced Asian markets all deepen in a fragmentation scenario. As rising
trade barriers trim exports from China to advanced economies, these economies turn to
geopolitically closer partners to plug the gaps. The fastest growing of these corridors in a

A new trade paradigm: How shifts in trade corridors could affect business 11
 fragmentation scenario run from Europe to the United States and advanced Asian partners,
due to Europe’s ability to replace some of China’s previous exports. For example, the
European bloc’s manufacturing heft might help the United States substitute for imports of a
range of manufactured goods from China.

Of course, growth in these corridors is contingent on the degree of trade cooperation that
advanced economies exhibit. At the time of writing, while negotiations were still ongoing, the
levels of discussed tariffs and barriers were still substantially lower than those between some
advanced economies and China.

Cautious bets
These corridors would grow in all scenarios, but in a fragmentation scenario, their growth would
lag behind the global baseline average. Some of these corridors are already deep, such as some
between advanced economies and those that connect the largest advanced economies and
fast-growing regions of ASEAN, India, and the Middle East (Exhibit 5).

More specifically, cautious bets include the following:

— Corridors connecting emerging economies including Africa and advanced economies with
complementary endowments (such as between Europe and the Middle East, between
Europe and Latin America, between Europe and Africa, and between advanced Asia and
ASEAN). In the baseline scenario, emerging economies increase their share of two-way trade
with advanced markets, due to their fast growth and the way their exports complement those
of advanced economies. For example, Europe, advanced Asian economies, and the United
States export a lot of pharmaceuticals and transport equipment that emerging markets will
increasingly need as they grow. Conversely, some emerging markets (such as ASEAN or
India) can specialize in textiles and electronics exports, others (such as Latin America and the
Middle East) in energy, materials, and metals, all of which are needed in advanced economies.

However, in a fragmentation scenario, the growth of these corridors (while still positive)
is more muted. In this future, emerging economies generally see slower growth, creating
a drag on their trade corridors. Furthermore, as China’s trade with advanced economies
plummets, it redirects trade toward emerging economies, selling more to them and, in some
cases (notably ASEAN), buying more from them. The increase in available Chinese supply
at lower prices could disrupt producers in emerging economies and reduce their exports to
other markets.

Recent developments highlight the growing interest in these corridors. The European Union
has pursued trade deals with the Mercosur bloc in Latin America, ASEAN, and Africa to
expand global ties and diversify trade. When ratified, a new EU–Mercosur agreement would
create a major free trade area with Argentina, Brazil, Paraguay, and Uruguay. 4 With ASEAN,
the European Union has signed bilateral deals with Singapore and Vietnam and is negotiating
with others. In Africa, the European Union has signed Economic Partnership Agreements
with regional blocs. And with the 2023 signing of an Interim Trade Agreement between the
European Union and Chile, which went into effect this year, the European Union is now the
largest source of foreign direct investment into Chile, which in turn is an important source of
critical minerals for Europe such as lithium and copper. 5

4
“EU-Mercosur agreement,” European Commission, 2024.
5
“The EU-Chile Interim Trade Agreement (ITA) explained,” European Commission, 2023.

A new trade paradigm: How shifts in trade corridors could affect business 12
Web <2025>
<TariffTradeShifft>
Exhibit 5
Exhibit <6> of <8>

Cautious bets provide moderate growth, even in a fragmentation scenario.

Cautious-bet corridors
Growth in cautious-bet trade corridors,¹ Trade value at stake¹ across cautious-bet trade
under different scenarios,² 2022–35, % CAGR corridors, by value, % 2035 baseline trade value

Europe >> Middle East Baseline Europe >> Middle East 24

Europe >> LatAm³ Diversification Europe >> LatAm 24
Fragmentation
Europe >> ASEAN⁴ Europe >> ASEAN 32
ASEAN >> Europe Baseline trade- ASEAN >> Europe 34
weighted average
Africa >> Europe growth rate Africa >> Europe 19
ASEAN >> South Korea ASEAN >> South Korea 42
Middle East >> US Gray circle size = Middle East >> US 17
trade corridor value
ASEAN >> US ASEAN >> US 30
in 2022, $ trillion
ASEAN >> Japan ASEAN >> Japan 34
8.0
LatAm >> China LatAm >> China 12
0.6 32
South Korea >> ASEAN South Korea >> ASEAN
LatAm >> Europe LatAm >> Europe 20
US >> LatAm US >> LatAm 24
Middle East >> Europe Middle East >> Europe 24
Europe >> Europe Europe >> Europe 14

LatAm >> US LatAm >> US 20

Japan >> ASEAN Japan >> ASEAN 36

Mexico >> US Mexico >> US 23

US >> ASEAN US >> ASEAN 25

US >> Europe US >> Europe 20

Japan >> Europe Japan >> Europe 30

US >> Japan US >> Japan 31

Japan >> US Japan >> US 37

–2 0 2 4 6

CAGR, % Average at stake 19

1
Trade value at stake by corridor is calculated as the difference between the highest and lowest projected 2035 trade values across scenarios (baseline, frag-
mentation, diversification) for each sector within the corridor. These differences are then summed across all sectors and expressed as a share of the corridor’s
2035 baseline trade value. This reflects how much of a corridor’s trade is exposed to scenario-driven volatility. Values can exceed 100% when many sectors
within a corridor experience large swings across scenarios, since the metric reflects the total potential variation across all sector-level trades, not just the net
change in aggregate corridor trade.
²Baseline assumes stable trade and continued global growth. Fragmentation simulates rising trade frictions, with tariffs increasing by 60% for critical goods and
services and 20% for noncritical goods and services between geopolitically distant partners. Geopolitically neutral economies face moderate frictions, modeled
as 10% tariffs on critical traded goods and services. Diversification assumes countries and firms proactively broaden sourcing bases to three or more suppliers,
reallocating trade to reduce geographic import concentration across all sectors without explicit consideration of geopolitical position.
³Latin America.
⁴Association of Southeast Asian Nations.
Source: McKinsey Global Trade Model; McKinsey Global Institute analysis

McKinsey & Company

— Already deep corridors with lower baseline growth rates that link advanced economies
(such as intra-European Union, from the United States to Europe and Japan, and from
Japan to Europe and the United States). In these corridors, baseline growth is in line with
the slower economic growth of developed nations. And given that they are already deep and
well established, these corridors don’t benefit from a diversification scenario. For example,
Europe already has the highest intraregional trade share of any region. In fact, our modeling
finds these corridors would grow the fastest in a fragmentation scenario, where advanced

A new trade paradigm: How shifts in trade corridors could affect business 13
 economies need to take an “any port in a storm” approach to replacing Chinese and Russian
imports. For example, fragmentation could further strengthen intra-EU production and
consumption—particularly in machinery, autos, and local clean-energy production. Recent
developments in European policy, such as discussions about coordinated procurement of
defense products, have bolstered these ties.

Uncertain bets
This category includes corridors that shrink materially in at least one scenario we consider.
Of the 11 corridors, nine connect geopolitically distant economies with advanced economies
and are highly exposed in a fragmentation scenario. In a fragmentation scenario, these trade
corridors would shrink (even relative to today) by an average of 5.8 percent per year, compared
with 2.3 percent growth in the baseline and 1.7 percent in the diversification scenario, putting
significant trade value at risk. The pullback would be particularly obvious in trade between China
and Russia and advanced economies. For critical goods and services, these corridors would fall
sharply from the current 15 percent share of global trade to just 2 percent by 2035 (Exhibit 6).

Web <2025>
<TariffTradeShifft>
Exhibit 6
Exhibit <7> of <8>

Many uncertain bets are vulnerable to fragmentation.

Uncertain-bet corridors
Growth in uncertain-bet trade corridors,¹ Trade value at stake¹ across uncertain-bet trade
under different scenarios,² 2022–35, % CAGR corridors, by value, % 2035 baseline trade value

Europe >> China Baseline Europe >> China 78

China >> Europe Diversification
China >> Europe 103
Fragmentation
South Korea >> China South Korea >> China 83
China >> Japan Baseline trade- China >> Japan 74
weighted average
Japan >> China growth rate Japan >> China 79
China >> US China >> US 80
Australia >> China Gray circle size = Australia >> China 53
trade corridor value
US >> Canada in 2022, $ billion US >> Canada 46
Russia >> Europe Russia >> Europe 75
800 550 200
US >> China US >> China 76
US >> Mexico US >> Mexico 28
–12 –8 –4 0 4
Average at stake 76
CAGR, %
1
Trade value at stake by corridor is calculated as the difference between the highest and lowest projected 2035 trade values across scenarios (baseline, frag-
mentation, diversification) for each sector within the corridor. These differences are then summed across all sectors and expressed as a share of the corridor’s
2035 baseline trade value. This reflects how much of a corridor’s trade is exposed to scenario-driven volatility. Values can exceed 100% when many sectors
within a corridor experience large swings across scenarios, since the metric reflects the total potential variation across all sector-level trades, not just the net
change in aggregate corridor trade.
²Baseline assumes stable trade and continued global growth. Fragmentation simulates rising trade frictions, with tariffs increasing by 60% for critical goods and
services and 20% for noncritical goods and services between geopolitically distant partners. Geopolitically neutral economies face moderate frictions, modeled
as 10% tariffs on critical traded goods and services. Diversification assumes countries and firms proactively broaden sourcing bases to three or more suppliers,
reallocating trade to reduce geographic import concentration across all sectors without explicit consideration of geopolitical position.
Source: McKinsey Global Trade Model; McKinsey Global Institute analysis

McKinsey & Company

A new trade paradigm: How shifts in trade corridors could affect business 14
Shifts in trade stemming from geopolitical dynamics are already apparent. As tensions escalate,
countries are increasingly looking to new geopolitically closer sources. For example, Europe has
reduced its share of natural gas imported from Russia to 19 percent, from 45 percent, with the
aim of dropping to 0 by 2027.6 After the 2018 rise in tariffs between China and the United States,
China’s share of all US imports declined to about 15 percent in 2024, from about 24 percent.7 In
May 2025, multiple rounds of tariff changes and broader trade disputes triggered a sharp decline
in US–China trade, with Chinese customs data reporting an 18 percent year-on-year drop in
imports and a 35 percent decline in exports. But while US–China trade has declined over the
past few years in gross terms, it has seen little change in terms of value added. 8 This is because
many of the economies that increased trade with the United States themselves rely on China as
a provider of important inputs. In this way, the reduction of US–China trade has spurred growth
in other corridors. For example, ASEAN economies have increased trade with the United States,
but at the same time with China too.

The two remaining corridors involve trade from Canada and Mexico to the United States. They
fall into the group of uncertain bets, but for very different reasons. These economies are closely
integrated today, with deep and concentrated corridors. For example, the United States already
accounts for about 80 percent of Canadian and Mexican exports of manufactured goods, and
as much as 90 percent in sectors such as transport equipment. These corridors are therefore
vulnerable to a diversification scenario, rather than fragmentation.

Sector-specific strategies are essential

Electronics aren’t iron ore, and iron ore isn’t fashion. Every sector has distinct characteristics
that will produce different dynamics in every scenario (Exhibit 7). And product-specific trade
barriers may emerge, adding more turbulence to already complex flows. In the following section,
we’ll look closely at manufactured goods and resources. (Services are also affected by sectoral
dynamics; see sidebar “Beyond goods trade.”)

Shifts in trade stemming from

geopolitical dynamics are already
apparent. As tensions escalate,
countries are increasingly looking
to new geopolitically closer sources.

6
“Roadmap to fully end EU dependency on Russian energy,” European Commission, May 6, 2025.
7
“Geopolitics and the geometry of global trade: 2025 update,” McKinsey, January 27, 2025.
8
“Geopolitics and the geometry of global trade: 2025 update,” McKinsey, January 27, 2025.

A new trade paradigm: How shifts in trade corridors could affect business 15
Web <2025>
<TariffTradeShifft>
Exhibit 7
Exhibit <8> of <8>

Sector dynamics vary, creating uneven risks and opportunities.

Growth in sector trade under different scenarios,¹
2022–35, % CAGR
1
Baseline Trade-weighted Circle size = Sector trade Potential trade
Diversification average trade corridor 4 value, 2022, swing,² % of 2035
Fragmentation growth rate 2022, $ trillion 7 $ trillion baseline trade

Electronics and
electrical equipment 5.1 58

Chemicals 2.0 27

Metal and
mineral products 0.9 30

Machinery
and equipment 2.0 44

Textiles
and apparel 1.5 45

Transport
equipment 3.0 20

Pharmaceuticals 0.9 29

0 1 2 3
1
Baseline assumes stable trade and continued global growth. Fragmentation simulates rising trade frictions, with tariffs increasing by 60% for critical goods and
services and 20% for noncritical goods and services between geopolitically distant partners. Geopolitically neutral economies face moderate frictions, modeled
as 10% tariffs on critical traded goods and services. Diversification assumes countries and firms proactively broaden sourcing bases to three or more suppliers,
reallocating trade to reduce geographic import concentration across all sectors without explicit consideration of geopolitical position.
²Potential trade swing by sector is calculated as the difference between the highest and lowest projected 2035 trade values across scenarios (baseline, frag-
mentation, diversification) for each corridor within the sector. These differences are then summed across all corridors and expressed as a share of the sector’s
2035 baseline trade value. This reflects how much of a sector’s trade is exposed to scenario-driven volatility.
Source: McKinsey Global Trade Model; McKinsey Global Institute analysis

McKinsey & Company

Trade in manufactured goods is highly exposed to shifts

Manufacturing industries could see the greatest shifts in trade corridors.

Start with electronics. Fully 58 percent of future baseline trade value is exposed to shifts in
global trade dynamics, driven by three key characteristics. First, 22 percent of electronics trade
is made between geopolitically distant partners, considerably higher than the global average
of 12 percent, which amplifies the sector’s vulnerability under fragmentation. Second, critical
subsectors (including semiconductors and electrical equipment) make up a large portion—more
than 80 percent—of the category and face significantly higher tariffs in a fragmentation scenario.
Third, the sector is highly concentrated, with China and other Asian economies serving as the
de facto electronics factory of the world. For example, China accounts for around 75 percent of
global laptop exports. As a result, diversification efforts would have a particularly pronounced
impact on this subsector.

A new trade paradigm: How shifts in trade corridors could affect business 16
Beyond goods trade

Countries exchange vast flows of capital, interlinked flows—services and IP both bilateral trade but spark new exports from
knowledge, and people, as McKinsey run from the West to Asia (for example, India over time.
Global Institute research has previously consider a US chip-design company
Flows of intangibles can face high
established.1 Trade in goods is the most licensing its architecture to an Asian
barriers, often in forms other than tariffs.
visible, but other flows are just as critical. foundry), while the trade of goods runs
For instance, in the trade of services,
In fact, flows linked to knowledge and from Asia to the West (the exports of the
regulatory restrictions, licensing
know-how are growing fastest. Flows manufactured chips).2
requirements, and data localization rules
of intellectual property (IP) and services
While goods and intangibles flows are can all create substantial friction. Some
grew about twice as fast as goods trade
often interconnected, they can move in sectors rely on seamless cross-border
between 2010 and 2019. Data flows grew
different directions and at different paces. collaboration, harmonized standards,
at almost 50 percent per year.
For example, cross-border investment and access to global talent pools. In a
Trade in goods and trade in intangibles in the auto sector could reduce trade in fragmented scenario, divergent regulation
such as services and IP are often finished vehicles while boosting trade of (especially a lack of mutual recognition
interlinked. For example, many Western intermediate products as firms localize final of credentials) and relocation of client
multinationals undertake manufacturing assembly. Japanese automakers investing operations could substantially impair
in lower-cost locations such as East in US production facilities in the 1980s is an service delivery.
Asia, while retaining design or marketing example. 3 Similarly, a German OEM setting
activities closer to home. This creates up an R&D center in India today may reduce

1
“Global flows: The ties that bind in an interconnected world,” McKinsey Global Institute, November 15, 2022.
2
Harvard University Press Blog, “Globalization’s three unbundlings,” blog entry by Richard Baldwin, November 29, 2016.
3
Candace Howes, “Japanese auto transplants and the US automobile industry, Economic Policy Institute, 1993; David Wong, “The US auto industry in the 1990s,” Scispace,
December 31, 1989.

Textiles and apparel aren’t considered critical, but given their distinct dynamics, 45 percent of
trade value might be exposed to shifts. In fact, shifts in trade between geopolitically distant
economies are already underway. For example, China’s share of US textile and apparel imports
fell by 14 percentage points between 2017 and 2024. In their place, imports from other Asian
economies rose by ten percentage points. Notably, some of these economies increased their
imports from China. In a fragmentation scenario, this pattern could persist or even intensify.
Our model indicates that as a result, total trade volume under fragmentation remains close to
the baseline—and even exceeds that of diversification. This is because our model assumes a
20 percent tariff between geopolitically distant economies, but no additional tariffs when trade
flows through “connecting economies.” As a result, China continues exporting intermediates
to connecting economies (particularly in Southeast Asia and India), which then assemble and
ship final goods to advanced economies. This rerouting preserves overall trade value. In the
diversification scenario, rerouting isn’t expected. Even many emerging economies would shift
away from China, limiting its ability to export both intermediates and finished products. Trade
volume would fall as a result.

Machinery and equipment would face a comparable level of change, with up to 44 percent of
2035 trade value exposed to shifts. The sector covers critical industrial applications including
industrial and electrical machinery, specialized equipment, engines and turbines, and automated
robotic systems, which are exposed to higher tariffs under a fragmentation scenario. Trade

A new trade paradigm: How shifts in trade corridors could affect business 17
between geopolitically distant partners accounts for 16 percent of the sector. Moreover, the
supply base tends to be concentrated. The top three exporters of electrical machinery account
for about half of global exports.

On the other hand, the pharmaceutical and transport equipment sectors will likely have lower
value exposed to shifts. This is largely because a higher share of their trade occurs between
geopolitically closer economies, reducing exposure to shock by fragmentation. For example, in
pharmaceuticals, even though the sector is critical, most trade takes place between advanced
economies with similar geopolitical positions, such as Europe, Japan, and the United States.
Similarly, in the transport and equipment sector, intraregional trade is relatively strong, with
significant flows occurring within Europe and North America.

Although our model suggests that the manufacturing sector is subject to the biggest shifts, it
may still underestimate the true scale of disruption, as it doesn’t fully capture the cascading
impact of a potential lack of small yet critical components—a phenomenon that’s all too common
in real-world manufacturing. For example, shortages of small but essential parts such as
semiconductors and wiring harnesses forced many automakers to slow or halt production in
2022. Similarly, breaks in supply chains for plastic resins led to delays in packaging, auto parts,
and electronic casings. These chain reactions highlight how the absence of a single input can
ripple across entire production systems. This phenomenon is also pronounced in critical minerals,
which we explore in the next section.

In resource sectors, concentration could be costly to unwind

Concentration—whether global or local (that is, economy specific)—will significantly shape
resource trade under different scenarios. For globally concentrated goods such as critical
minerals, which are exported by only a few economies, short-term alternatives are limited. In a
fragmentation scenario, this could lead to lost trade or major rerouting through geopolitically
closer economies. In contrast, locally concentrated goods—those that, like energy and
agriculture, have many suppliers but countries choose a limited set of partners for a range
of reasons—would experience big shifts in a diversification scenario. Widely produced
commodities such as wheat or rice could see volatility in prices. In both global and local
concentration, the transition costs of shifting suppliers, combined with some downstream ripple
effects, might be profound.

Mining is a globally concentrated and strategically exposed sector, both in physical extraction
of ores from the earth and in the subsequent refinement. In some subsectors, extraction is
particularly concentrated: Among many other examples, the top three producers account for
over 70 percent of lithium production, 80 percent of nickel, and over 90 percent of cobalt.9
Development timelines of a decade or more for new mining projects make rapid diversification
challenging.10 Refining is even more concentrated than extraction—for example, in lithium, one
country (China) has 70 percent of refining production capacity. Refining capabilities can be even
harder to develop than extraction, leading again to difficulties in reconfiguring the destination

9
“Global Critical Minerals Outlook 2025,” International Energy Agency, May 2025.
10
“Average observed lead times from discovery to production for selected minerals, 2010-2019,” International Energy Agency,
May 2021.

A new trade paradigm: How shifts in trade corridors could affect business 18
of trade corridors. In the case of rare earths, both extraction and refining are concentrated, and
both in China: The country accounts for more than 60 percent of extraction and 90 percent of
refining. These effects together entrench dependency among downstream buyers. Though
trade values in raw rare earths are modest, the downstream impact of disruption would be
disproportionate. On average, $1 of neodymium, a rare earth vital for electric motors in electric
vehicles and wind turbines, can enable about $600 of economic output.

Energy resources, particularly oil and gas, are more distributed than many think. The top three
oil producers account for only 40 percent of global production, and major exporters span a
wide geopolitical range, from North America to the Middle East and Russia.11 Instead, it’s locally
concentrated—Korea and Japan import more than 75 percent of their oil from the Middle East,
for example, and have optimized their refineries for these oils; it would be costly to shift to
alternative sources.12 That’s emblematic of the broader story with energy: Supplier diversification
or radical transitions due to geopolitical fragmentation can carry significant economic costs,
including building and retrofitting infrastructure such as pipelines and refineries and managing
price volatility. When European countries replaced Russian gas with liquefied natural gas (LNG)
from the United States and others, they had to repurpose or expand existing pipelines and LNG
terminals, and also rapidly build new regasification terminals and storage capacity.13 As of 2025,
the United States and geopolitically close economies are in discussions to expand trade of LNG
and boost energy security ties, but such efforts are expected to come to fruition only by the
2030s.14

Agriculture, like energy, is also locally concentrated and exhibits similar dynamics. While some
products such as soybeans are heavily concentrated (over 90 percent of exports come from the
United States, Brazil, and Argentina), most have multiple suppliers, and agricultural products
tend to be more substitutable than other resource categories. Yet countries often rely on
nearby partners—for example, Southeast Asian nations source rice from Vietnam and Thailand,
and North African countries have historically relied on wheat from Ukraine and Russia. Local
concentration makes sense: Trade in agriculture is shaped by logistics, perishability, and long-
standing trade relationships. In a fragmentation scenario, a handful of globally concentrated
products could be disrupted. But diversification would result in wider-reaching impact.
Replacing established trade routes can create cascading effects, as new supply relationships
may lack the same scale, consistency, and quality. The sector is also inherently prone to price
volatility due to weather, conflict, and other regional disruptions. For example, during the early
part of the war in Ukraine, prices for several key commodities surged by 20 to 50 percent before
gradually returning to prewar levels.15 Ongoing trade uncertainty could amplify these fluctuations,
compounding the sector’s existing vulnerability to external shocks.

11
“Annual petroleum and other liquids production,” US Energy Information Administration.
12
“Japan oil security policy,” International Energy Agency, August 2022; “Korea oil security policy,” International Energy Agency,
March 2023; “What are the main traded sectors and who are the main trade partners of an economy?”, Global Trade Explorer,
McKinsey Global Institute.
13
John Snyder, “Europe snaps up FSRUs to speed energy security,” Riviera, July 7, 2022.
14
Spencer Kimball, “Trump administration is convinced massive Alaska energy project will find investors despite steep cost,”
CNBC, June 2, 2025.
15
“War in Ukraine: Twelve disruptions changing the world—update,” McKinsey, July 28, 2023.

A new trade paradigm: How shifts in trade corridors could affect business 19
How businesses can get ahead of changing dynamics
When we look across business models, whether at an OEM, a distributor or retailer, a
transportation or logistics operator, or an investor, the shifts in trade across corridors will require
deft handling. Businesses can shape a coherent response to trade shifts by thinking through five
questions:

— What is the mid-to-long-term impact on the current business due to trade shifts across
corridors? How does this play out under different scenarios?

— Which trade corridors will become more important in the future view of the business, and
which ones will become lower priorities?

— What is the value creation potential of these important trade corridors for the business over
the mid-to-long term?

— How is the business positioned today to capture this value? What tactical and operational
actions should the business take to maximize its ability to fully capture this value?

— What are the strategic and organizational changes needed to support these action
plans? What are the new capabilities and organizational setups needed to navigate this
tectonic change?

As just one illustration of what it takes to navigate tectonic trade shifts, consider how Micron, a
US-based semiconductor company, undertook a set of multipronged actions to significantly
increase its opportunities. Semiconductors are among the industries that could be most affected
by geopolitical dynamics and trade shifts. The company wanted not only to defend its business
but also to accelerate growth—and to do it all at pace.

The company responded quickly and decisively to the government’s invitation to invest by
building an ASTM-certified16 facility in India, committing several billion dollars to the project in a
country where semiconductor fabs are mostly unknown. That’s a sizeable investment, of course,
but the company felt confident that it had done its homework. The new fab was geopolitically
nearer than other options and would also let it tap nascent domestic demand, which they
estimated would grow much faster than the global average, doubling from roughly $50 billion to
$100 billion by 2030.17

This early investment helped Micron make a move quickly when India’s government offered
incentives for further investment in India. Because it had immediately committed to the prime
minister’s initial invitation, the Indian government recognized the company’s first mover status
with a sizeable 70 percent capital subsidy for the new project.18

16
As published by ASTM International.
17
“India’s semiconductor market set to reach $103.4 billion by 2030,” Ministry of External Affairs, Government of India,
February 12, 2025.
18
Nidhi Singal, “Narendra Modi govt is giving shape to India’s semiconductor dreams: A high-stakes race to global dominance,”
Fortune India, February 9, 2025.

A new trade paradigm: How shifts in trade corridors could affect business 20
 Business leaders are understandably flummoxed by all the recent changes in trade policy and
Find more content like this on the
the uncertain potential for many more. In the face of this change, it’s exceedingly difficult to
McKinsey Insights App
commit to wholesale changes in the corporate strategy. Instead, we propose that companies
develop solutions that make sense for them by looking closely at the trade corridors that are
vital to their business and industry and using that rubric to shape tactical moves that will position
them well for a volatile future.

At time of publishing, countries around the world are actively revising tariff and trade
policies. Final outcomes and implications for businesses, governments, and individuals are
highly uncertain.
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Jeongmin Seong is a partner at the McKinsey Global Institute (MGI) and is based in McKinsey’s Shanghai office,
Olivia White is a director of MGI and a senior partner in the Bay Area office, Shivanshu Gupta is a senior partner in
the Bengaluru office, Asutosh Padhi is a senior partner in the Chicago office, Brajesh Chhibber is a partner in the
Gurugram office, Jeffrey Condon is a senior knowledge expert in the Atlanta office, and Tiago Devesa is a senior
fellow at MGI and is based in the Lisbon office.

The authors wish to thank Apurva Misra, Camillo Lamanna, Jayati Shah, Rebecca J. Anderson, and Tejesh Pradhan
for their contributions to this article.

This article was edited by Mark Staples, an editorial director in the New York office, and Brian Blackstone, a senior
editor in New York.

Designed by McKinsey Global Publishing

Copyright © 2025 McKinsey & Company. All rights reserved.

A new trade paradigm: How shifts in trade corridors could affect business 21