Hedging Against Trump Risk: How Global Trade Is Quietly Moving On

For years, globalization has been declared dead. Since the trade wars of 2018, obituaries for free trade have appeared with predictable regularity, often accompanied by claims that protectionism has replaced the open economic order. Yet recent developments suggest a different reality. Globalization is not collapsing—it is adapting. And in doing so, it is learning how to move forward without relying so heavily on the United States.

Two major trade developments over the past month illustrate this shift with unusual clarity. The European Union has concluded a landmark free trade agreement (FTA) with India, while also formally signing a long-delayed pact withMercosur, the South American trade bloc. Together, these deals send a clear signal: free trade remains a mainstream strategy, even as the global economic map is being redrawn. For many governments, the overriding strategic priority is no longer ideological commitment to globalization, but a pragmatic necessity—hedging against Trump risk.

Since Donald Trump first launched his tariff offensive in 2018, globalization has faced sustained pressure. China was the primary target, but never the only one. Trump's return to the White House last year turned tariffs into a universal weapon, deployed not only against rivals but against allies as well. At the same time, rapid shifts in global supply chains and industrial policy have pushed many economies toward protectionism. The World Trade Organization has been largely sidelined, unable to restrain policies that openly violate its founding principles. Against this backdrop, it is little wonder that many observers concluded free trade—and globalization itself—was finished.

The EU–India agreement directly challenges that assumption. While still subject to legal review and ratification, the deal represents one of the largest free trade frameworks ever negotiated. It encompasses a combined market of roughly two billion people, nearly US$27 trillion in GDP—about one quarter of the global economy—and close to one third of global trade. Even compared with the RCEP, it stands as a massive economic bloc.

What makes the agreement especially significant is India's reversal. Long known for its protectionist instincts, New Delhi famously withdrew from RCEP at the final stage of negotiations to shield domestic industries. From a geopolitical and industrial perspective, India arguably stood to gain more from joining RCEP than from striking a deal with the EU. That it is now willing to lower barriers to European goods, including automobiles, reflects a deeper calculation: the perceived risks of exposure to unpredictable U.S. trade policy have begun to outweigh the comfort of isolationism.

A similar logic underpins the EU–Mercosur pact. Negotiations were technically completed in late 2024, but resistance—led by France over agricultural imports—kept the agreement frozen. This time, Brussels chose urgency over consensus. By navigating around internal opposition, the EU formally signed the agreement in Paraguay on January 17, creating a free trade zone covering more than 750 million people and roughly 20 percent of global GDP. That two trade deals, each negotiated for over two decades, suddenly reached completion within weeks of each other is no coincidence. The Trump factor looms large.

Trump's policy of “reciprocal tariffs” has imposed heavy costs on the global economy, but the greater damage lies in uncertainty. Even countries that reach trade agreements with Washington remain exposed to sudden escalation. The EU faces a baseline 15 percent tariff, yet during the Greenland dispute Trump threatened additional duties of 10 to 25 percent on eight European countries—before ultimately backing down, reinforcing the now-popular acronym “TACO,” or “Trump Always Chickens Out.” France was threatened with 200 percent tariffs on wine after President Emmanuel Macron declined to join a U.S.-led peace council. Canada, long America's closest ally, faced threats of 100 percent tariffs following Prime Minister Mark Carney's visit to China. India has already been hit with 50 percent tariffs over its purchases of Russian oil, with speculation of even higher rates to come.

For major economies, the lesson is clear. To reduce vulnerability to Trump's whims, dependence on the U.S. market must be reduced. Trade diversification is no longer optional. No country can afford to hang its economic future on a single market—especially one governed by volatility rather than rules.

In this sense, Trump has become the inadvertent matchmaker of global trade realignment. Without him, India would be unlikely to open its auto market to Europe, and the EU would almost certainly have deferred the Mercosur deal rather than override French objections. “America First” was meant to restore U.S. dominance. Instead, it has accelerated efforts elsewhere to move on without Washington.

This same dynamic is visible in global diplomacy, nowhere more so than in Beijing. Britain's prime minister traveled to China last week, the first such visit in eight years. In recent months, Western leaders have queued for Beijing: France's president in December, Ireland's prime minister in early January, followed by leaders from Canada, Finland, and soon Germany. Others, including Spain and South Korea, are also engaging more actively. This is not a sudden ideological conversion, nor a collective decision to “join China.” Such a notion is both incorrect and impossible.

What has changed is realism. Countries that once championed values-based alliances under the Biden administration have seen their enthusiasm eroded by Trump's trade shocks. Canada offers the clearest example. Beijing cannot replicate the depth of the former U.S.–Canada relationship, but for Ottawa, diversifying exports away from overwhelming reliance on the American market is essential. As the world's largest trading nation and second-largest economy, China is an unavoidable part of that strategy—not as a substitute for the U.S., but as a hedge against it.

Ironically, at a moment when Washington presents itself as the guardian of a rules-based order, many governments now view China as more predictable than Trump's America. Beijing appears increasingly willing to operate within existing trade frameworks, while Trump's approach resembles that of a revisionist power—disrupting rules rather than enforcing them. From China's perspective, strengthening economic ties with U.S. allies serves the same purpose: spreading risk and cushioning against American volatility.

For supporters of free trade, these developments offer cautious reassurance. The proliferation of new trade agreements and the deepening of economic ties beyond the United States, suggest that globalization remains intact. It is not retreating—it is being rerouted. The more uncomfortable question is for Washington itself. After years of upheaval, has “America First” made the United States stronger, or has it quietly shrunk America's role in the global economic system? And as globalization moves on, who will lead it next?

Original Article in Chinese

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