Why Trade Keeps Expanding Despite Tariffs

Throughout 2025, the global trading system absorbed significant shocks, yet world merchandise trade volumes expanded by an estimated 3.8 percent, recovering from previous contractions at a pace significantly faster than institutional models — including the WTO’s own projections — had anticipated. While growth is expected to moderate into 2026, the absolute volume of goods crossing international borders continues to rise, with forecasts from the WTO, UNCTAD, and IMF landing between 2.6 and 3.1 percent. [1][2][3]

This persistent expansion suggests a fundamental disconnect between the aggressive political posturing regarding de-globalization and the actual operational realities of multinational corporations. Trade is not collapsing — it is reorganizing, adapting, and finding new pathways of least resistance. The mechanisms driving this resilience are both behavioral (corporate strategy) and structural (bilateral agreements quietly replacing multilateral frameworks). [4]

The “Medieval Diptych” of US Trade Policy

To accurately contextualize global trade in 2026, one must analyze the dualistic nature of current US trade policy — what strategic analysts at the Atlantic Council have categorized as a “medieval diptych”: a policy framework characterized by two starkly contrasting, yet simultaneously operational, panels of action. [4]

The Left Panel: Disruption, Shocks, and Erratic Tariffs

The highly visible, public-facing side is characterized by aggressive, seemingly unpredictable tariff threats and the unilateral weaponization of market access. This approach explicitly disregards preexisting WTO agreements regarding bound tariff rates and systematically violates the core tenet of Most Favored Nation (MFN) equality. [4]

A premier example: the implementation of a broad 50 percent punitive tariff on Indian goods entering the US market in late 2025. India’s exports to the US collapsed by 21.7 percent to $6.6 billion by January 2026. Similarly, erratic threats — such as the short-lived 10 percent tariff threat leveled at European partners during diplomatic disputes regarding Greenland — injected massive market volatility before being abruptly withdrawn. [4][5]

However, the disruptive power of this left-panel strategy is subject to severe diminishing marginal returns in 2026. Financial markets and supply chain managers have begun to discount the severity of these threats. The US administration has repeatedly issued broad threats only to quietly issue vast quantities of corporate exemptions, avoiding domestic inflationary blowback. Because the US economy depends on importing advanced components (like chips) required for its own AI infrastructure boom, indiscriminately taxing these imports would stall technological supremacy — forcing moderation in applied tariffs. [4]

The Right Panel: Constructive Reform and Supply Chain Security

Operating concurrently but with far less visibility is a systemic effort to fundamentally restructure global commerce. This acknowledges that hyper-globalization failed to account for national security imperatives, supply chain fragility, and the rise of nonmarket economies that subsidize domestic production to create global overcapacity. [4]

At the WTO, the US and allied nations push for institutional reform, advocating for plurilateral agreements that prevent singular nations from blocking consensus, and adjustments to special and differential treatment rules. Simultaneously, a vast web of highly specific bilateral trade agreements — with nations like Guatemala and El Salvador — systematically dismantles non-tariff barriers, aligns digital trade regulations, and secures agricultural and material inputs for North American industrial bases. [4]

The interim trade arrangement negotiated to de-escalate the US-India tariff dispute — removing 25% penal tariffs on Indian products in exchange for reciprocal reductions — demonstrates a pragmatic willingness to use tariffs as leverage for stabilizing strategic Indo-Pacific partnerships. [5]

Mechanisms of Resilience: Front-Loading and Supply Chain Agility

The expansion of trade volumes despite tariff regimes is tied to two behavioral mechanisms exhibited by global corporations: front-loading and extreme supply chain agility. [6]

Throughout late 2024 and 2025, multinationals engaged in aggressive front-loading — accelerating purchasing cycles and building massive inventory buffers before elevated duties could be enacted. This temporal demand shift artificially inflated trade statistics and GDP contributions in the short term, ensuring trans-Pacific shipping lanes operated at maximum capacity and contributing to the “faster than expected” 3.8% volume growth. [1][6]

Rather than collapsing under bilateral tariff pressures, trade flows rerouted through secondary markets. The trends of “friendshoring” and “nearshoring” accelerated, resulting in heightened trade volumes between the US and jurisdictions like Mexico and the ASEAN bloc. These regions effectively act as intermediaries, allowing goods to bypass direct trans-Pacific routes subject to the highest tariff penalties, ensuring total global commerce continues expanding even as direct bilateral balances shift. [4]

As 2026 progresses, the macroeconomic consensus is that the negative effects of implemented tariffs — higher domestic inflation, reduced real incomes, weaker GDP growth — will transition from theoretical threats to empirical realities as front-loaded inventory buffers are exhausted. The OECD explicitly notes that tariff effects will be felt more acutely in 2026 as costs are passed on to consumers — a position corporations cannot absorb indefinitely to protect market share. [6]

New Frontiers: Carbon Border Tariffs and the Energy Transition

A new frontier of trade friction is emerging around the energy transition. Driven by economic, energy security, and climate concerns, the shift toward renewable energy and transport electrification is occurring faster than expected. To prevent “carbon leakage,” developed jurisdictions like the European Union are preparing to fully implement Carbon Border Adjustment Mechanisms (CBAMs). [7]

While designed to incentivize decarbonization by placing tariffs on carbon-intensive imports, CBAMs effectively function as a new layer of environmental tariffs, fundamentally altering the competitive calculus for developing nations reliant on fossil-fuel-intensive manufacturing. These mechanisms represent the intersection of climate policy and trade policy — a rapidly expanding domain that will reshape global value chains throughout the remainder of the decade. [8]

The Wallet Wars: Tokenized Payments and De-Dollarization

Adding a monetary layer to trade fragmentation in 2026, the “wallet wars” are intensifying. Nearly three-quarters of the G20 are moving toward tokenized cross-border payment systems designed to bypass traditional, dollar-reliant banking networks. [4]

Nations including China, India, Brazil, and Russia are actively testing and deploying these networks, providing new, decentralized rails for global trade, remittances, and energy payments. This represents a profound structural shift — facilitating trade resilience among BRICS nations while simultaneously advancing a slow, systemic de-dollarization strategy that insulates these economies from Western financial sanctions and tariff-related currency volatility. [4]

The strategic implications are significant. If tokenized settlement systems gain critical mass, they could fundamentally undermine the US dollar’s role as the default medium for international trade settlement — reducing Washington’s ability to leverage financial sanctions as a foreign policy tool and creating a parallel financial architecture that operates outside the traditional SWIFT-based system. [4]

Strategic Outlook: Reorganization, Not Collapse

The central conclusion of the 2026 trade analysis is that globalization is not retreating — it is reorganizing under a new set of rules. The “medieval diptych” framework is not merely a metaphor; it accurately describes a policy architecture where public disruption coexists with private construction. [4]

For investors and corporate strategists, the implications are clear. First, bilateral trade agreements will increasingly replace multilateral frameworks as the primary vehicles for market access, requiring granular, country-by-country compliance infrastructure. Second, supply chain resilience has permanently replaced supply chain efficiency as the dominant strategic objective — enterprises that optimized for lowest cost alone will face structural disadvantages as tariff regimes, CBAM requirements, and geopolitical alignment increasingly dictate routing decisions. [4][7]

Third, the de-dollarization push through tokenized settlements represents the most significant long-term structural shift. While the dollar’s dominance is not immediately threatened, the construction of alternative payment rails by 75% of the G20 creates optionality that reduces US financial leverage over global commerce — a gradual but profound rebalancing of monetary power. [4]