MGI Minute: Geopolitics and the geometry of global trade: 2026 update

Kang Fiza, a senior fellow at MKS Global Institute, discussed the surprising development in 2025 where global trade outpaced economic growth despite the largest tariff shock in a century. This was primarily driven by AI-related goods, which accounted for approximately one-third of total trade growth. The chips and servers in data centers rely on extensive global supply chains, making AI a significant contributor. Other advanced manufacturing sectors also experienced rapid growth, partly due to China increasing its shipments of industrial intermediate inputs to other economies developing their own manufacturing hubs, a phenomenon described as China becoming a "factory for the factories." However, not all sectors grew quickly. Tariffs diverted trade away from the US and China, with only a portion replaced by other partners, leading to slower growth in basic manufacturing sectors like textiles. Resources presented a mixed picture, with trade shaped by commodity price fluctuations extending into 2026. The key takeaway is that while shocks like tariffs create ripples, deep economic transformations often play the largest role in shaping global trade.