A new McKinsey Global Institute report examines how global trade is evolving based on four factors: trade intensity, geographic distance, geopolitical distance, and import concentration. The most significant ongoing shift in trade patterns is the decline in the average geopolitical distance of trade. Between 2017 and 2024, the measure dropped by -7%, indicating countries are trading more with geopolitically aligned partners.

The U.S. has reduced its trade in manufactured goods with China by six percentage points, while the share of imports from Mexico and ASEAN rose by two and four percentage points, respectively. In 2023, Mexico became the U.S.’s top goods supplier, a position China had held since 2007.

China is also shifting its trade focus. Developing economies now account for most of their imports and exports instead of advanced economies. ASEAN has surpassed the Europe 30 bloc as China’s top trading partner. Trade with Latin America has also grown, with China-Brazil trade increasing by 13% annually between 2017 and 2024. Meanwhile, exports of Chinese transportation equipment to Russia have risen from 2% to over 10% by 2024.

Despite data showing a decline in U.S. reliance on Chinese goods, indirect trade links remain. In 2023, about 25% of Vietnam’s electronics exports contained values added originally in China. This suggests that economies such as Vietnam are partly intermediating trade flows in U.S.-China trade.

Source: American Shipper