By: Anit Mukherjee with Dhruba Purkayastha, Arya Roy Bardhan, Srijan Shukla, and Jhanvi Tripathi
The following excerpt is from Chapter 2 — Geoeconomics and Trade of ORF Global Quarterly: Navigating Megatrends for 2026.
The architecture of global economic relations will face further challenges, tests, and restructuring in 2026, as key political leaders continue to put national priorities above mutual benefit as experienced last year. The “reciprocal tariffs” announced by the United States (US) in early April disrupted the global trade flows and unsettled the multilateral system built over several decades. As a result, global players are adjusting to this new reality and altering their behavior beyond tariff measures to safeguard their own interests. Rather than allowing comparative advantage to be the primary determinant of trade flows, geoeconomics, the use of a country’s economic strength to achieve geopolitical, security, and foreign policy objectives, has become the driving force in negotiating trade agreements between the US and its major trading partners. Strategic competition between the US and China has extended beyond tariffs into other domains, including export controls imposed on advanced technologies such as semiconductor chips and their inputs, particularly rare earths and critical minerals.
The reaction of other countries to the disruptions of last year offers a glimpse of the future rebalancing of global trade anticipated in 2026, in three ways. First, traditional allies in the Global North that depend on significant trade with the US, such as the European Union (EU), the United Kingdom (UK), Japan, and South Korea, have negotiated lower tariff rates. However, they have found it difficult to meet the significant investment commitments of billions of dollars into the US that they have promised in return. Second, Global South countries with larger economies, including Mexico, Brazil, India, and South Africa, have pushed back against conditionalities for trade deals that affect national sovereignty such as energy security and judicial independence. Third, countries that sought to reduce their overdependence on the US as the largest market and China as the largest supplier of consumer goods achieved limited success and will struggle to contain the impact of tariffs on their domestic economies in the year ahead.
1. US-CHINA STRATEGIC COMPETITION INCREASINGLY IMPACTS THE GLOBAL SOUTH
The geoeconomic landscape in 2026 will become increasingly complex. While there appears to be a temporary truce between the US and China on the tariff front, strategic competition between the United States and China over critical technology and its inputs will continue intensifying. For other countries seeking to develop their own capabilities in critical technologies such as artificial intelligence, closing the gap with the two major geoeconomic powers will become more difficult.
The US-China competition over critical technologies and resources that fuel AI and advanced manufacturing will intensify in 2026. In 2025, both the US and China implemented export controls on national security-related technologies such as advanced semiconductors and critical minerals. This has triggered the latest round of threats of further retaliatory tariffs by the US. The US initially sought to exercise its leverage through restrictions on the sale of advanced semiconductor chips to China by private companies such as Nvidia, which are essential for artificial intelligence (AI) data processing. Europe became involved in the debate through the takeover of Nexperia by the Government of the Netherlands. The recent rollback of some of the restrictions by the US suggests that its policy will remain unpredictable and fluid in the year ahead.
However, what is clear is that in 2026, countries of the Global South with large critical mineral reserves such as Indonesia and Mexico will leverage their access to natural resources in exchange for lower tariffs and greater investment in domestic processing and manufacturing sectors, capitalizing on the US-China geoeconomic competition to their advantage.
Four megatrends will define geoeconomics and trade in 2026 — this is just one. Discover the other three in ORF Global Quarterly: Navigating Megatrends for 2026.