Geopolitics and the geometry of global trade: September 2026 update

At a glance

 

US trade pivoted further from China, and AI demand kept climbing

• The US trade deficit declined in the first five months of 2026.
• But most of this was due to a temporary effect: As 2025’s tariff-driven stockpiling unwound, imports of chemicals, pharmaceuticals, and gold fell.
• Meanwhile, AI-related imports remained the biggest driver of US trade growth, as in 2025, reflecting the data center construction boom.
• The long-running shift away from China toward other Asian suppliers continued.
• US energy exports rose as buyers turned to American supplies after the conflict with Iran disrupted flows through the Strait of Hormuz.

US imports returned closer to trend

In early 2025, US companies stockpiled imports—chemicals, pharmaceuticals, and gold from Europe in particular—before anticipated tariffs. This frontloading reversed in the first five months of 2026.

• Chemical, pharmaceutical, and gold imports dropped, pulling overall imports down by about 5 percent.
• Europe’s share of US imports slid eight percentage points—the biggest drop of any partner. The decline largely reflected the reversal of 2025 frontloading but extended to other categories, including autos.
• The United States continued its longstanding shift from China toward other Asian suppliers. China’s share of US imports fell 2.7 percentage points, while Association of Southeast Asian Nations (ASEAN) economies and other Asian suppliers gained 4.6 and 3.7 percentage points, respectively.

One-off product shifts drove deficit decline

Underlying trade trends were more stable than the headline deficit drop would suggest.

• The US trade deficit shrank 34 percent on a headline basis in the period from January through May 2026.
• Excluding the reversal of 2025’s import surge, the deficit narrowed by 4 percent.
• This narrowing came from stronger exports—especially of energy—while imports kept growing on AI demand.

US pivoted further away from China

Since 2017, the United States has been shifting imports toward ASEAN and other Asian partners. This sped up in 2026, driven by two distinct forces.

• First, US–China trade tensions continued to lead companies to source more from ASEAN and other Asian manufacturers, particularly laptops, smartphones, and other electronics.
• The AI boom, meanwhile, added demand for supplies from Taiwan and Vietnam. Taiwan was the standout beneficiary: US imports from Taiwan rose 78 percent in January through May, centered on semiconductors and servers. Taiwan accounted for $47 billion of the $127 billion overall increase in AI-related imports.
• Separately, imports from Europe fell largely as the 2025 surge reversed, particularly gold from Switzerland and pharmaceuticals from Ireland.

AI boom led trade growth

AI-related goods remained the biggest contributor to US trade growth, as in 2025.

• AI-related imports nearly doubled to $260 billion from January through May, dwarfing every other import category, most of which declined.
• Exports of AI-related goods rose $29 billion, or 52 percent, with $19 billion going to Canada and Mexico, where components are often assembled before returning as finished goods to the United States.
• Separately, energy exports rose $40 billion, or 32 percent, as buyers in Europe and Asia turned to the United States amid the Strait of Hormuz disruption, with releases from the US Strategic Petroleum Reserve contributing to the increase in crude exports.
• Meanwhile, auto imports continued to decline amid elevated tariffs introduced in 2025.

At a glance

China strengthened its position as the “factory to the factories”

• Both exports and imports grew at double-digit rates in January through June, accelerating from 2025 amid continued trade tensions with the United States.
• AI-related goods drove a larger share of growth.
• China strengthened its position as the factory to the factories, with intermediate-goods exports accounting for about three-quarters of its export growth.
• Trade with the rest of Asia—especially South Korea and Vietnam—grew as electronics and related components flowed in.

China’s trade growth accelerated

China’s trade growth surged in the first half of 2026 despite elevated US tariffs and continued trade tensions.

• Overall exports grew 18 percent—more than triple the pace a year earlier—led by semiconductors, electronics, and electric vehicles.
• Total imports increased 26 percent on demand for AI-related inputs and metals.
• The goods trade surplus remained broadly in line with last year’s record level.
• The US share of China’s exports fell about two percentage points, continuing a multiyear slide.

Trade growth shifted toward the Asia-Pacific

China’s shift toward trade partners within Asia accelerated, driven by surging AI trade. Oil imports from the Middle East declined due to the Strait of Hormuz disruption.

• South Korea and Vietnam led the shift toward Asia, with imports up 61 percent and 41 percent, respectively, reflecting stronger demand for electronics and AI-related parts in January through June.
• Crude oil imports from the Middle East fell by about $21 billion, while imports from Indonesia, Brazil, Russia, and other suppliers increased.

China deepened its factory-to-the-factories role

Exports of intermediate goods increased even faster than in 2025, making up most of China’s export growth in the first half of 2026, as China’s importance as a supplier to other manufacturers grew.

• Exports of intermediate goods increased 27 percent in January through June, up from 9 percent in 2025, and accounted for almost three-quarters of total export growth. Memory chips and batteries were the categories that grew the most.
• Capital goods exports grew 14 percent, nearly triple last year’s pace, supported by computer storage units.
• Consumer goods exports grew 6 percent, reversing a 2025 decline, with growth led by electric and hybrid vehicles and smartphones despite softer US demand and weaker prices in some categories.

AI-related goods drove China’s trade growth

The AI boom became a bigger contributor to China’s trade growth in the first half of 2026.

• After slower growth in 2025, imports of chips and related goods rose 72 percent in 2026 amid surging AI infrastructure demand, with elevated semiconductor prices also contributing.
• Exports nearly doubled to $256 billion, lifted by stronger global demand and higher chip prices.
• Chinese EVs and hybrids continued to gain ground overseas, helping transportation equipment exports jump 29 percent, or $48 billion.
• Record gold purchases drove the increase in metals imports, following a correction from peak prices.
• Crude oil imports fell while higher prices kept overall energy imports broadly stable in dollar terms.

At a glance

The EU faced a deepening trade squeeze

• Headline figures made EU trade conditions look worse than they were in January through April 2026, but the bloc still faced real pressures.
• Plunging exports to the United States—partly a reversal of 2025’s unusual surge—pushed what had been a small overall trade surplus into deficit.
• The structural challenge remains a double squeeze from intensifying Chinese competition at home and abroad and higher US tariffs.
• Rising AI-related imports pointed to growing investment in data centers.

EU exports fell

US stockpiling ahead of tariffs boosted EU exports in 2025; its reversal explains much of the decline in early 2026. Two structural pressures also intensified: rising imports from China and falling vehicle exports.

• Exports of drugs and chemicals fell 8 percent and 45 percent, respectively, driving much of the 6-percent decline in overall exports. The drop was particularly pronounced in shipments from Ireland to the United States, reflecting Ireland’s role as a major production hub for US pharmaceutical companies.
• Rising imports from China widened the EU’s deficit with China by €11 billion, while EU auto exports to the United States fell further amid elevated tariffs introduced in 2025.
• Meanwhile, the bloc continued to increase trade with Africa and Asian economies, especially ASEAN members.
• A €58 billion total trade surplus a year earlier swung to a €2.4 billion deficit, against €1.7 trillion in total extra-EU goods trade.

Trade pivoted further toward Asia

Rising imports from China increased competitive pressure on EU manufacturers, while growing demand for AI-related goods deepened the bloc’s ties with other Asian suppliers.

• Imports from China rose 4 percent in January through April, extending a 16 percent increase a year earlier. Exports to the market shrank by 6 percent.
• Imports from Taiwan—largely AI-related goods—surged 43 percent as Europe expanded AI data center capacity. Elsewhere in Asia, imports from Vietnam and Malaysia rose 21 percent and 16 percent, respectively.

EU auto exports slid further

Falling EU auto exports and rising EV imports from China continued to squeeze the auto industry from both sides. Meanwhile, AI-related trade emerged as a potential growth area.

• Exports of transportation equipment fell about 7 percent in January through April. Stronger competition from China’s automakers weighed on EU shipments to China, while tariffs continued to constrain US-bound exports.
• Transportation equipment imports rose 4 percent. Imports of Chinese hybrids and plug-in hybrids continued to grow, while Chinese battery EV imports rebounded in 2026 after falling in 2025 following EU tariffs introduced in late 2024. Other measures, including minimum-price arrangements for Chinese EV imports, are also being considered to address competitive pressures in the EU market.
• Chemical exports fell as US customers drew down stockpiles of GLP-1 drug ingredients built up last year.
• AI-related imports climbed 45 percent, albeit from a low base, while AI-related exports, including data-processing equipment and chips, climbed 29 percent.
• Energy imports dropped only slightly as the EU replaced shipments disrupted through the Strait of Hormuz with supplies from the United States and Norway.

At a glance

ASEAN’s role in electronics and AI value chains continued to grow

• The region continued to clock double-digit trade growth in January through March.
• ASEAN increased trade with both the United States and China, reinforcing its role as a connector between the two.
• Rising AI-related trade, particularly with Taiwan and South Korea, added another growth engine.
• Electronics remained ASEAN’s largest trade category, while fast-growing machinery exports pointed to a growing role in AI-related supply chains.

Trade stayed strong

Trade grew at a double-digit pace in January through March of 2026, while a faster shift toward partners outside the region reinforced ASEAN’s role as a global supply chain hub.

• China gained 1.2 percentage points of ASEAN import share, while other Asia-Pacific partners gained another 2.2 points, bringing their combined share to roughly 56 percent.
• North America continued to gain export share: The United States added 0.6 percentage points of share in early 2026, following a 1.9-point gain in 2025, while Canada and Mexico added 0.7 points, following their 0.4-point gain in 2025. Other Asia–Pacific gained 1.1 percentage points of share after a small decline in the prior year.
• Overall, imports rose 18 percent and exports 14 percent, with electronics growing faster on the import side and machinery growing faster on the export side.

ASEAN strengthened its connector role

The region expanded trade with both China and the United States as global supply chains continued to adjust to US–China trade tensions.

• China widened its lead as ASEAN’s main supplier, with imports from China up 24 percent to $161 billion in January through March.
• The United States gained importance as an export market for ASEAN, with exports rising 18 percent to $108 billion. Electronics and machinery led the increase.
• Trade with Taiwan and South Korea, major suppliers of chips and AI-related components, also grew, deepening ASEAN’s role in electronics and AI supply chains.

ASEAN’s role in electronics deepened

Growing trade in machinery reflected deeper integration into the AI-related supply chain.

• Machinery exports rose 39 percent in January through March, up from growth of 34 percent a year earlier, reflecting shipments of server parts and data-processing units.
• Electronics remained the largest contributor to regional trade growth.

At a glance

India’s exports picked up, but stronger imports widened the deficit

• India made progress toward expanding its exports in the first five months of 2026.
• Refined petroleum exports shifted toward Asia and Africa, where buyers turned to Indian supplies as disruptions in the Strait of Hormuz constrained Gulf shipments.
• Non-energy export growth broadened. Smartphones and other communications goods extended last year’s gains, while transportation equipment also grew.
• Imports continued to grow, driven by metals and manufacturing inputs. Import growth outpaced export growth, widening the trade deficit.

Hormuz disruptions reshaped energy flows

Disruptions to the Strait of Hormuz shifted crude sourcing for India’s mainstay refining industry and redirected more energy to Asia and Africa.

• India’s crude sourcing shifted toward Russia, Brazil, and other suppliers, while the Middle East’s share of India’s total imports fell by 6.4 percentage points in January through May.
• ASEAN and Africa replaced disrupted Gulf supplies of refined petroleum with Indian shipments, becoming more important export destinations for India.
• The energy shift came amid broader import growth of 13 percent overall, versus just over 4 percent for exports, widening the trade deficit by 28 percent.

Trade grew with many Asian economies

Manufacturing inputs drove India’s trade shift toward China and other Asian economies, while exports to the United States weakened.

• Trade with China rose 24 percent to $69 billion, driven mostly by imports—especially telecom parts, batteries, and other manufacturing inputs.
• Non-energy trade with ASEAN and other Asian economies increased by $12 billion, driven by stronger imports of memory chips, processors, and other electronics.
• India’s trade with the United States edged down 0.5 percent to $63 billion as exports fell 11 percent. Pharmaceuticals pulled back from unusually strong 2025 levels, while diamonds also declined. Smartphone exports rose modestly after surging last year. Imports from the United States rose 23 percent, led by precious metals and chips.

Imports led growth

Export growth outside energy broadened somewhat, with communications goods and transportation equipment posting gains. Gold, electronics, and machinery drove import gains.

• Electronics exports grew 11 percent, expanding beyond smartphones into communications equipment and parts. Imports in the sector rose 27 percent.
• Transportation equipment exports increased 14 percent, led by storage tankers, EVs, and motorcycles across a range of markets.
• Gold-related products accounted for about 42 percent of import growth, while electronics and machinery added another 38 percent, supporting domestic production.

At a glance

Brazil’s export growth shifted further toward Asia

• Brazil’s export growth accelerated in the first half of 2026, led by shipments of oil and other commodities to China.
• Overall, Brazil traded more with Asia, while tariffs weighed on trade with the United States.
• Metals and minerals broadened the sources of export growth, complementing energy and agriculture.

Brazil’s exports accelerated

Brazil’s export growth sped up in the first half of 2026, extending a long-running shift toward China.

• Exports grew 11 percent, up from 3 percent in 2025, amid disrupted commodity markets and higher energy prices.
• China drove more than half of the increase, gaining 2.6 percentage points of export share, led by crude oil, beef, and soybeans. Soybean exports extended gains from 2025, when US–China trade tensions drove a shift in China’s sourcing toward Brazil.
• The trade surplus expanded by 40 percent as export growth outpaced import growth.

Trade with the United States fell

Brazil deepened trade ties across Asia through stronger commodity flows, while trade with the United States shrank.

• Exports to India rose more than 70 percent, led by crude oil, with soybean oil and copper ores also adding to the increase. China remained a major market for Brazilian crude.
• On the import side, shipments from South Korea rose about 70 percent, led by offshore drilling platforms—reflecting Brazil’s continued investment in the oil and gas industry.
• US-bound trade fell about $2.5 billion, or 13 percent, amid continued tariff pressure and weaker exports of oil, iron and steel, and coffee. Easing coffee prices also contributed.

Metals and minerals exports added momentum

Higher metals and minerals exports broadened Brazil’s export growth across products and destinations, complementing strong energy and agricultural exports.

• Metals exports rose 25 percent, led by gold shipments to major refining and trading hubs such as Canada, Switzerland, and the United Arab Emirates.
• Exports of minerals increased 18 percent, driven mainly by iron and copper ores to Europe, India, and other Asian markets, in addition to China.
• Transportation imports were broadly flat but shifted toward China, as EV imports rose and US aircraft imports fell from unusually high 2025 levels. On the export side, the 2025 auto surge to Argentina normalized while aircraft shipments to the United States and Europe increased.