World Trade Is Splitting Into Blocs. How Mid-Sized Economies Can Survive

The share of global trade conducted under WTO rules has dropped to 72%, a decline from over 80% in 2022. Meanwhile, 16% of trade now occurs within WTO frameworks through preferential agreements. This shift signifies a move away from universal rules and toward bilateral deals, exemptions, and sector-specific regimes. The World Economic Forum predicts that geoeconomic fragmentation could cost the global economy hundreds of billions annually, with countries outside major blocs facing even greater losses.

The recent U.S. Supreme Court decision to overturn tariffs under IEEPA led Washington to impose new tariffs under Section 122, and subsequently under Section 301. These changes emphasize the importance of exporters focusing on the actual tariff burden, rather than the statutes that enforce them. The U.S. also recently utilized Section 338 against Canada, illustrating how tariffs can now be selectively applied to individual partners.

Global trade fragmentation extends beyond tariffs. Since 2020, thousands of discriminatory measures have been introduced, and technical regulations now impact a significant portion of global commerce. For mid-sized economies, market access is no longer solely determined by WTO tariff schedules. Instead, it depends on whether your country made the right list.

Critical materials are now subject to security agreements, with China implementing export controls on rare earths and other strategic resources. The U.S. and its allies are responding with frameworks like FORGE, strategic stockpiles, financing mechanisms, and bilateral supply agreements, which go beyond mere commercial transactions and include financing, permits, off-take commitments, price guarantees, and political alignment.

Mid-sized economies are developing strategies to navigate the increasingly complex landscape between economic powers. Simply diversifying markets is no longer sufficient, as market access now hinges on technical compliance, supply chain security, and political relationships. As legal bases change faster than tariffs themselves, exporters must plan against the actual tariff rate, not the statute.

Economic and security frameworks are increasingly attractive for mid-sized economies, as they offer resources, production capacity, technology, logistics, or alternative market access that major blocs lack. While fragmentation leaves mid-sized economies without a comfortable place, it also presents opportunities for those capable of providing what the major blocs lack.