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By the end of 2025, the global economy is influenced not only by market forces and multilateral institutions but increasingly by geo-economic strategies. Countries are using economic instruments—such as trade policy, financial controls, investment screening, and supply chain leverage—to pursue geopolitical goals. This marks a decisive shift toward trade fragmentation, visible in the rise of regional blocs, the weaponization of interdependence, and the weakening of the post-WTO global trade framework.

This article examines the major drivers behind this trend, its consequences, and its implications for India, concluding with an outlook on the future of global trade.

What Is Geo-economics?

Geo-economics refers to the strategic use of economic tools—such as sanctions, trade restrictions, and investment rules—for geopolitical objectives. Unlike earlier globalization, which emphasized interdependence and efficiency, this new phase prioritizes resilience, security, and autonomy.

The World Economic Forum’s 2025 Global Risks Report emphasizes this shift, noting that “the weaponization of trade, finance, and technology is now a central feature of international relations.”

Declining Global Trade Integration

Over the past six years, global trade integration has steadily declined, as the following table shows.

Metric 2019 2023 2025 (Est.)

Global Trade-to-GDP Ratio 60.1% 56.2% 54.8%

WTO Dispute Cases Filed 38 17 11

Share of Trade in Regional Blocs 52% 58% 63%

Sources: World Bank, WTO, IMF Direction of Trade Statistics

According to the World Bank’s 2025 Trade Outlook, continued fragmentation could reduce global GDP by up to 7% over the long term, especially if restrictions extend to technology and capital flows.

Drivers of Trade Fragmentation

One major driver of fragmentation is the deepening strategic rivalry between the United States and China. U.S. policies such as the CHIPS and Science Act and semiconductor export controls have led China to retaliate, resulting in a decline of more than 15% in bilateral trade since 2021 and a rapid acceleration of technological decoupling.

A second factor is the heavy use of sanctions and financial coercion. From 2022 to 2025, more than 12,000 new sanctions were imposed worldwide, targeting Russia, Iran, and Chinese entities. The deployment of SWIFT removals and asset freezes has encouraged nations to explore alternatives like China’s CIPS system and India’s growing RuPay–UPI cross-border settlement networks.

Third, global supply chains have undergone significant securitization. Disruptions during the COVID-19 pandemic and the war in Ukraine exposed deep vulnerabilities, pushing countries toward “friend-shoring” and “near-shoring.” A prominent example is Apple’s relocation of over 25% of iPhone assembly to India by 2025.

A fourth driver is the rise of climate-related trade measures. The European Union’s Carbon Border Adjustment Mechanism (CBAM) imposes tariffs on carbon-intensive imports. Many developing countries criticize the policy as a disguised form of green protectionism, and in many respects, that criticism holds weight.

Rise of Regional Trade Blocs

Regionalism has expanded rapidly. As of May 2025, the WTO reported 375 Regional Trade Agreements in force—compared to just 22 in 1990. Although the classification of individual agreements may vary, the overall trend is unmistakable.

The following table lists some of the most influential blocs and their strategic priorities:

Bloc Members 2025 Trade Volume (USD) Strategic Focus

BRICS+ 11 (incl. Iran, Egypt, UAE) $6.2 trillion 

De-dollarization, South–South trade

RCEP 15 (Asia-Pacific) $12.7 trillion Manufacturing, digital trade

EU 27 $15.3 trillion Green economy, tech regulation

IPEF (U.S.-led) 14 $9.1 trillion Supply chain resilience, standards

Sources: IMF, UNCTAD, Brookings Institution

India participates in BRICS+ and is a key partner in the Indo-Pacific Economic Framework (IPEF), giving it influence in both Global South and Western-led strategic architectures.

BRICS Response to the U.S. Tariff War

The tariffs imposed by the United States have strengthened economic coordination within BRICS. Russia offered India discounted crude oil when Washington imposed a 50% tariff on Indian goods, leading to savings of approximately $2.6 billion for India. China removed its export restrictions on rare earths to India in response to U.S. threats, further consolidating ties between the two countries. Moreover, the U.S. announcement of an additional 10% tariff on all BRICS nations pushed member states into closer internal coordination, contributing to a more cohesive bloc.

India’s Geo-economic Strategy

India has positioned itself as a central actor in this emerging geo-economic order. It has diversified its trade patterns, maintaining stable engagement with the U.S. and EU while expanding trade with Russia, the UAE, and Southeast Asia. It has pursued new bilateral Free Trade Agreements with the UK, Australia, and the UAE and continues negotiations with both the European Union and the GCC.

India is also using digital trade diplomacy as a strategic tool. Its Digital Public Infrastructure (DPI) model—comprising UPI, Aadhaar, and ONDC—has become a major soft-power export, especially in Africa and Southeast Asia. In addition, the Reserve Bank of India has expanded rupee trade settlement mechanisms with more than 20 countries, reducing dependencies on the U.S. dollar.

Implications of Trade Fragmentation

Trade fragmentation results in efficiency losses and reduced economies of scale. The IMF estimates that exclusive trade blocs could lead to a 5–7% long-term decline in global GDP. Restrictions on cross-border collaboration, especially in critical technologies such as AI, biotechnology, and semiconductors, may slow innovation.

Emerging markets are being repositioned by shifting supply chains. While countries like Vietnam, Brazil, and India have benefited from new opportunities, they now face intensified strategic pressures from both Western economies and China. Financial fragmentation is another consequence: the increasing use of alternative payment systems and the rise of Central Bank Digital Currencies (CBDCs) pose long-term challenges to the dominance of the U.S. dollar.

Conclusion / Outlook: The Future of Global Trade

The future of global trade is moving toward a plurilateral system in which coalitions of like-minded countries set standards in technology, security, and values, even as the traditional influence of the WTO diminishes. India’s challenge in this evolving order is to preserve strategic autonomy while remaining deeply integrated into global trade networks.

By leveraging its demographic advantage, technological capabilities, and diplomatic balance, India must position itself as a dependable partner that can work with multiple blocs without being drawn into major-power conflicts. This balance will determine India’s strategic and economic success in an increasingly fragmented world.