地緣政治與全球貿(mào)易的幾何學(xué)++Geopolitics+and+the+Geometry+of+Global+Trade

Geopoliticsandthegeometryofglobaltrade

Authors

JeongminSeong

OliviaWhite

MichaelBirshan

LolaWoetzel

CamilloLamanna

JeffreyCondon

TiagoDevesa

Editor

JanetBush

January2024

McKinseyGlobalInstitute

TheMcKinseyGlobalInstitutewasestablishedin1990.Ourmissionistoprovideafactbaseto

aiddecisionmakingontheeconomicandbusinessissuesmostcriticaltotheworld’scompaniesandpolicyleaders.WebenefitfromthefullrangeofMcKinsey’sregional,sectoral,andfunctionalknowledge,skills,andexpertise,buteditorialdirectionanddecisionsaresolelytheresponsibilityofMGIdirectorsandpartners.

Ourresearchiscurrentlygroupedintofivemajorthemes:

—Productivityandprosperity:Creatingandharnessingtheworld’sassetsmostproductively

—Resourcesoftheworld:Building,powering,andfeedingtheworldsustainably

—Humanpotential:Maximizingandachievingthepotentialofhumantalent

—Globalconnections:Exploringhowflowsofgoods,services,people,capital,andideasshapeeconomies

—Technologiesandmarketsofthefuture:Discussingthenextbigarenasofvalueandcompetition

Weaimforindependentandfact-basedresearch.Noneofourworkiscommissionedorfundedbyanybusiness,government,orotherinstitution;weshareourresultspubliclyfreeofcharge;

andweareentirelyfundedbythepartnersofMcKinsey.Whileweengagemultipledistinguishedexternaladviserstocontributetoourwork,theanalysespresentedinourpublicationsareMGI’salone,andanyerrorsareourown.

YoucanfindoutmoreaboutMGIandourresearchat/mgi.

MGIDirectors

SvenSmit(chair)

ChrisBradley

KweilinEllingrud

SylvainJohansson

OliviaWhite

LolaWoetzel

MGIPartners

MichaelChui

MekalaKrishnan

AnuMadgavkar

JanMischke

JeongminSeong

TilmanTacke

Geopoliticsandthegeometryofglobaltrade1

Contents

3

Ataglance

Introduction

4

1.Tradeconnectstheworldacrossgeopoliticaldifferences

7

2.Tradereconfigurationisunderway

19

3.Differentfutures,differenttrade-offs

35

4.Implicationsforbusinessleaders

47

50

Acknowledgments

Endnotes51

2Geopoliticsandthegeometryofglobaltrade

Ata

glance

—Tradeinconcentratedproductsbindsgeopoliticallydistanteconomies.Tradebetweengeopoliticallydistanteconomiesaccountsfornearly20percentofglobalgoodstradebut

closeto40percentoftradeingloballyconcentratedproducts—productssuchaslaptops

andironoreforwhichthreeorfewereconomiesprovideatleast90percentofglobalexports.

—Tradereconfigurationisunderway.Since2017,China,Germany,theUnitedKingdom,andtheUnitedStateshavereducedthegeopoliticaldistanceoftheirtradeby4to10percent

each.TheUnitedStateshasalsoreducedthegeographicdistanceanddiversifiedtheoriginsofitstrade.Meanwhile,economiesoftheAssociationofSoutheastAsianNations,Brazil,andIndiaaretradingmorebothacrossthegeopoliticalspectrumandoverlongerdistances.

—Increasedinvestmentintoarangeofdevelopingeconomiessuggestsfurthertrade

reconfigurationincomingyears.Whileroughly60percentofgreenfieldinvestmenthas

flowedtodevelopingeconomiessince2010,itsdestinationisshifting.Thelargestleaps

inthepasttwoyearswereinAfricaandIndia,whileannouncedinvestmentintoChinaand

Russiafellbyabout70and98percent,respectively,comparedwithprepandemicaverages.

—Thefutureofglobaltradewillinvolvetrade-offs—reducinggeopoliticaldistance

comeswithincreasingtradeconcentration,andviceversa.Weexploretwotypesof

reconfiguration.Inone,economiesshifttheirtradetomoregeopoliticallyalignedpartners.Asabyproduct,averagetradeconcentrationincreasesby13percentandeconomicgrowthsuffers.Intheother,traderelationshipsdiversifysothatnoeconomyishighlydependentonanother,butasaconsequence,thegeopoliticaldistanceoftradeincreasesby3percent.

Thedegreeoftrade-offvariessignificantlyacrossindividualeconomies.

—Businessleadersneedtopositiontheirorganizationsforuncertainty.Thispositioning

caninvolvecultivatinganinsightsedge,anticipatingandadaptingwithscenarioplanning,

developingaportfolioofstrategicactions,andbuildinggeopoliticalmuscle.Businessescanalsoembracecooperationtocontributeto,andhelpshape,thediscourseontheevolutionofglobalconnections.

Geopoliticsandthegeometryofglobaltrade3

Introduction

Tradereconfigurationhasbeenmakingheadlines.In2023,MexicobecametheUnitedStates’

largestgoodstradepartner.1Vietnam’stradewithChinaandtheUnitedStateshasbeensurging.2Europeaneconomies’energyimportsshifteddramaticallyawayfromRussia,whileimportsof

someproductsfromChina,suchaselectricvehicles,boomed.3

Alongwithsuchheadlines,anewlexiconhasemergedamongpolicymakersandbusiness

leaders.Useoftermssuchas“decoupling,”“derisking,”“reshoring,”“nearshoring,”and

“friendshoring”incorporatepresentationsincreasedmorethan20-foldbetween2018and2022.4Thesubtextofthesetermsisoftengeopolitical,whichisincreasinglyafeatureof

talkabouttrade.AveragetariffsongoodstradebetweenChinaandtheUnitedStateshave

increasedbetweenthree-andsixfoldsince2017.5FollowingRussia’sinvasionofUkraine,

theEuropeanUnion(EU),theUnitedStates,andmanyotherplayersimposedsanctions.A

largemajorityofcompaniesfromEurope,Japan,andtheUnitedStateswithdreworcurtailed

operationsinRussia.ThereroutingofshippinglanesduetotheRedSeacrisisthatstartedinDecember2023notonlyincursadditionalcosts,delays,andsecuritycomplexitiesbutalso

hasthepotentialtocreatefar-reachingshockwavesbeyondtheimmediatelocationsaffected.

Morebroadly,thenumberofnewglobaltraderestrictionseachyearhasbeensteadilyincreasing,fromabout650newrestrictionsin2017tomorethan3,000in2023.6

Howcanweunderstandandcalibratetheserecentchanges?Historically,valuechainshave

shiftedgradually,andrecentyearsarenoexception.Noeconomyhasgainedorlostmorethananannualizedtwo-percentage-pointshareofglobalexportsinanyvaluechainsince1995.

Despiteincreasingtariffsandrestrictionsinrecentyears,thathasnotchanged.But,since2017,thegeometryofeconomies’connectionshasbeenshifting.7Weanalyzethechanginggeometryofglobalgoodstradeusingfourmeasures,eachofwhichhasitsownlimitations:tradeintensity,geographicdistance,importconcentration,andanewmeasureof“geopoliticaldistance.”Thisnewmeasureisthegeopoliticalanalogofgeographicdistance.Itisanimperfectapproximation

ofhowgeopoliticalalignmentrelatestotrade,constructedbylookingatUNGeneralAssemblyvotingrecords.

Thesemeasuresincombinationhelpustocalibratethespeedanddirectionofrecentshifts.Forexample,between2017and2023,USimportsbecame18percentlessconcentratedintheir

origins.8Thisisarapidreversalofthetrendpriorto2017ofgraduallyincreasingconcentrationofUSimports.Chinahasbeenincreasingitsshareoftradewithdevelopingeconomiesaroundtheworld.9Thishasdrivena7percentincreaseintheaveragegeographicdistanceofitstradesince2017,aslightaccelerationofthepreexistingtrend.Germanyexperienceda6percentdropintheaveragegeopoliticaldistanceofitstradebetween2017and2023,drivenbyadeclinein

tradewithRussia.However,Germany’stradewithChinaincreased.Meanwhile,theeconomiesoftheAssociationofSoutheastAsianNations(ASEAN),Brazil,andIndiaareengaginginmoreextensivetradeoverlongerdistancesandacrossthegeopoliticalspectrum.

Howthisgeometrywilldevelopisuncertain.TakeVietnam,whichhasincreaseditsexports

totheUnitedStateswhiledeepeningitsupstreamtradeandinvestmentlinkswithChina.For

someobservers,theUSshifttowardimportsfromVietnamrepresentsareroutingoftradefromChina,withlimitedvalueaddedinVietnam.Inthistelling,ChinaandtheUnitedStatesremain

interconnected,butsupplychainshavebecomelongerandmoreopaque.10Seenanotherway,thisshiftcouldbethefirststepinajourneytowardVietnamemergingasamajorglobalsupplierforsomegoods,addingsubstantialvalueacrossavaluechainwellbeyondfinalassembly.

Thefutureisnotset.Butwhatcouldfurtherreconfigurationentail?Hopingtobracketarange

offutures,weconsidertwoillustrativetradereconfigurationsandtheirpotentialimplications.Inone,globaltradefragmentsand“deglobalizes”byshiftingtobeingbetweenmoregeopoliticallyalignedpartners.Inthesecond,tradebecomesmorediversified,withoutageopoliticallens.

Bothillustrativetypesofreconfigurationmayinvolvetrade-offs.Tradefragmentationmaylowergeopoliticalrisks,butitraisestradeconcentrationandcomesatsignificantmacroeconomic

cost.Diversificationmayimproveresiliencetosomeshocksandofferopportunityforarangeofpartners,butitretainstiesamonggeopoliticallydiversetradingpartners.

Thispaperconcludesbyexploringhowbusinessleadersmightconsiderpositioningtheirorganizationsforshiftsinthegeometryofglobaltrade.

1.Tradeconnects

theworldacross

geopolitical

differences

Theworldisdeeplyinterconnected.RecentMcKinseyGlobalInstitute(MGI)researchfoundthateverymajorregionreliesonimportsformorethan25percentofitsconsumptionofatleastonetypeofcriticalresource,manufacturedgood,orservice.11MGIhasalsofoundthat10percent

ofthevalueoftoday’sglobalgoodstradeisgloballyconcentrated:threeorfewereconomiesprovideatleast90percentofglobalexports.12

Goodstradeprofilesvarysubstantiallyamongeconomies

Notalleconomies’goodstradeisalike,andthegeometryoftheirconnectionsmatters(Exhibit1).Wehavelookedatthethreelargesttradingeconomiesintheworld,China,theUnitedStates,andGermany,aswellasthecombinedmembershipofASEAN,whichrepresentsthefourth.WehavealsoconsideredtheUnitedKingdom,asthesecond-largesteconomyinEuropeafterGermany;

India,theworld’ssecond-largestdevelopingeconomy(afterChina);andBrazil,thelargestdevelopingeconomyoutsideAsia.

Fourindicatorscapturesomeofthecontoursofthatgeometry.Economiesvaryinhowmuchtheytradeincomparisontotheirsize;thisistheirtradeintensity.Economiesalsovaryintheirpatternsoftradepartners,inbothwheretheyare,orgeographicdistance,andhowalignedtheyareon

globalissues,orgeopoliticaldistance.Forgeopoliticaldistance,weintroduceanimperfectbutquantitativemeasurebasedonUNGeneralAssemblyvotingrecordsbetween2005and2022(seeSidebar1,“Measuringgeopoliticaldistanceanditslimitations”).Finally,economiesdifferinhowbroadornarrowtheirnetworkofsupplyrelationshipsis,ortheirimportconcentration.

ASEANeconomiesandGermanyarehighlyintegratedregionalmanufacturinghubs

TheeconomiesofASEANandGermanytrademoreingoodsthanmanyotherlargeeconomies,measuringtraderelativetotheirGDP.Thisispartlydrivenbytheirintegrationintoregional

manufacturingvaluechainsthatcrisscrossnationalborders.Correspondingly,Germanytendstotradeovershortergeographicandgeopoliticaldistancesthandoothermajortradingeconomies,becauseEuropeisrelativelycompactandpoliticallyaligned.ThisintegrationbetweenEuropeaneconomiesalsodriveslowerlevelsofimportconcentrationduetoextensiveintra-EUtrade.TheUnitedKingdomisalsointegratedintoregionaltradenetworks,butitseconomyskewstoward

services,andithaslowergoodstradeintensitythanGermany,forexample.ASEANeconomies,

Geopoliticsandthegeometryofglobaltrade7

Exhibit1

Largeeconomiesdiferinthenatureoftheirgoodstraderelationsonfourdimensions.

ASEANBrazilChinaGermanyIndiaUKUS2023GDP(estimate)

1Tradeintensity,1%ofGDP

02040

60

80

100

120

Global

average

2

0

Geographicdistancetraveledbytrade,thousandkilometers

24681012

Exampledistance

China–SouthKorea

Global

average

US–

Germany

China–

US

3Geopoliticaldistancetraveledbytrade,0–10scale

0246810

US–

Germany

US–

SouthKorea

Global

average

China–

Brazil

Germany–

Russia

4

0

Importconcentration,Herindahl–HirschmanIndex2

200400600800

1,000

1,200

1,400

1,600

Globalaverage

1Tradeintensityisfor2022.Globalaveragesfordistanceandconcentrationmeasuresin2023areestimatedusingglobalUNComtradedatafor2021,supplementedby2023datafromapaneloflargeeconomies.

2Indexisacommonmarketindicatorofconcentration.Thevalueforaverageglobalimportdiversiicationishigherthanfortheeconomiespresentedaslargeeconomieshavelowerimportconcentration,onaverage,thanothereconomies.Importconcentrationisonlyrepresentedforindividualeconomies.

Source:UNComtrade;Destatis;USCensusBureau;ComexStat;GeneralAdministrationofCustomsofthePRC;GovernmentofIndiaMinistryofCommerceandIndustry;ASEANstats;UKDepartmentforBusiness&Trade;CEPII;Voeten(2017)andUNDigitalLibrary;WorldBank;McKinseyGlobalInstituteanalysis

McKinsey&Company

8Geopoliticsandthegeometryofglobaltrade

Sidebar1.Measuringgeopoliticaldistanceanditslimitations

WeusedvotesintheUNGeneralAssemblybetween2005and2022asaproxy

foralignmentonglobalissues.Since

manyvotesareproceduralorrepeated,

weincludedonlyvotesdesignatedas

“important”bytheUSDepartmentofState.

NoDepartmentofStatedatawereavailablefor2022,andthereforeweincludedthe

sixvotesrelatingtoRussia’sinvasionof

Ukraine.Overall,theanalysisincludes201votes,orabout15percentofallUNGeneralAssemblyvotesintheperiod.

Wedefinedaone-dimensionalspectrum

ofgeopoliticalpositionbasedonvotes.Weusedprincipalcomponentanalysistomapeachvotingcountryonaone-dimensionalvotingspectrumrangingfromzerototen.1Explicitly,wedidnotdefinethisspectrumbasedonanyspecificcountryorpairof

countries.Mostadvancedeconomies,

includingGermany,Japan,SouthKorea,

andtheUnitedStates,fellbetweenzero

andtwo.ChinaandRussiawerepositionedbetweennineandten.

Wethentookgeopoliticaldistance

betweenanytwoeconomiestobetheir

differenceonthisscale.Inallcalculationsinthispaper,thepositionofeachcountryisassumedtobefixedonthevoting

spectrumovertime.

Limitations

Thisapproachhasseverallimitations.

Mostfundamentally,votingpracticesat

theUNareonlyonemarkerofgeopoliticalalignment.Otherimportantfactors,suchassecurityties,economicties,and

otherbilateralagreements,maynotbe

correlatedwithUNGeneralAssembly

voting.Conversely,UNGeneralAssemblyvotes,eventhosedeemed“important”

bytheUSDepartmentofState,may

notrepresentcountries’positionson

globalissues.Votingpracticesmaybeinfluenced,forexample,bystrategic

(ortemporary)alliancesoragreements,domesticpoliticalconsiderations,or

simplytheidiosyncrasiesofacountry’sviewonaparticularmatter.Inaddition,

countries’positionsrelativetooneanotherdifferacrossglobalissues.Collapsingall

votesintoaone-dimensionalscaleloses

thisnuance.Despitetheselimitations,

otherresearchershavefoundempirical

trade-relatedanalysestoberobust

acrossarangeofmeasuresofgeopolitical

alignment,includingUNGeneral

Assemblyvotes.2

Separately,wenotethatcountries’

positionsonglobalissuescanchange

overtime.Weconductedrobustness

checksoverdifferenttimesbetween2005

and2022,andwefoundthatformany

economies—includingChina,theEuropean

economies,Japan,SouthKorea,andthe

UnitedStates—theirgeopoliticalposition

byourmeasuredidnotvarysignificantly.

However,thepositionofsomecountries,

suchasBrazilandMexico,wasmore

variable,althoughalwaystowardthecenterofthespectrum.

1TheapproachesusedtoanalyzeUNGeneralAssemblyvotestoidentifycountries’positionsonglobalissuesdiffer.Weusedprincipalcomponentanalysis(PCA)forthreereasons.First,PCAminimizestheinformationlostbyreducingthevotingdatatoasingledimension.Second,PCAcanidentifypatternsandsimilaritiesinvotingbehaviorthatagreementscorescanmiss.Third,PCAcanbeusedforclustering,asinthedefinitionofeconomygroupsinchapter3.

2See,forexample,BennyKleinman,ErnestLiu,andStephenRedding,Internationalfriendsandenemies,GriswoldCenterforEconomicPolicyStudiesworkingpapernumber292,March2022.ThisstudyconsidersUNGeneralAssemblyvotes,bilateralstrategicrivalries(basedonpolicymakerassessments),andformalalliances.

bycontrast,tradeintensivelyacrossAsia,whichisfartherflunggeographicallyandincludescountriesthatspanalargerrangeonthegeopoliticalspectrum,fromAustraliatoChina.

TheUnitedStateshasmoredistanttradepartnersandlowertradeintensity

ThetradeintensityoftheUnitedStatesislowerthanthatofmanyotherlargeeconomiesforarangeofreasons,includingthesizeandendowmentsofitsdomesticeconomy,whichenablesittosourcemanyproductsathome.ThevalueoffreightbetweenUSstateswassimilarin2022tothecountry’sinternationalgoodstrade.13Geographyplaysarole,too.Lessthan5percent

ofglobalGDPisgeneratedbyeconomieswithin5,000kilometersoftheUnitedStates,

mainlyCanadaandMexico.Bycontrast,26percentofglobalGDPisgeneratedbymorethan

80economieswithinthisdistanceofGermany.NothavingadensenetworkofneighboringlargeeconomiescontributestotherelativeconcentrationofUStraderelationsanditstradeacross

longerdistancesthanaverage.

Chinatradesacrossthegeopoliticalspectrum

China,thelargesttradingeconomyintheworld,standsoutfortradingmorewithgeopoliticallydistantpartnersthananyothereconomy.Ittradesextensivelyacrosstheglobe,includingwith

Geopoliticsandthegeometryofglobaltrade9

theEU,Japan,SouthKorea,andtheUnitedStates,whichincombinationaccountfor40percentofitstotalgoodstrade.AsChina’seconomyhasdeveloped,ithascometoconsumemoreofwhatitproduces,loweringtradeintensity.Itstotalgoodstradein2022wasequivalentto35percent

ofitsGDP,downfromthepeakof64percentin2006.

Brazil’stradetravelsfartherthanmost,withsignificantvolumesgoingtoChina

Brazil’stradetravelsfarthergeographicallythanthatofmanyeconomies,reflectingintensive

tradewithfarawayChina.ThestrengthofthisconnectionalsocontributestoBrazil’srelatively

higherimportconcentration.14Moreover,itsexportmixskewstowardcommodities.Indeed,fivecommodities(fromironoretocoffee)representedhalfofitsexportsbyvaluein2022.Itslargestexportissoybeans,withacultivatedareathesizeofBangladeshdedicatedtomeetingChina’sdemand.Asaresult,itstradeintensitycanswinginlinewithcommoditycycles,withrecenthighpricesdrivinganuptick.

Indiaisneartheglobalaverageinitstradegeometry

Indiasitstowardtheglobalaverageacrossdimensions.Thisreflectsitsbroadtraderelationships

withAsia,Europe,andtheUnitedStates,whichalsosupportrelativelydiversifiedimport

relationships.Itsownpositiontowardthecenterofthegeopoliticalspectrum—anditstrade

relationshipsacrossthisspectrum—resultsinitstradetravelinggeopoliticaldistancesthataresimilartotheglobalaverage.

Largereconomiestendtotradeoverwidergeopoliticaldistances

Itisanotablefeatureoftoday’stradegeometrythatsomeofthelargesttradingeconomiesin

theworld,includingChina,Japan,andtheUnitedStates,dosignificantbusinesswitheconomiesattheoppositeendofthegeopoliticalspectrum.In2021,theaveragegeopoliticaldistance

thatgoodstraveledwasaboutthedistancebetweenChileandtheUnitedStatesorChinaandNigeria:3.4unitsapartonageopoliticaldistancescalerunningfromzerototen.Thetradeof

manylargetradingeconomiestravelsfarther,sometimessubstantiallyso,thanthisaverage

geopoliticaldistance—forexample,GermanyandRussiaareabouteightunitsapart(Exhibit2).

Countriestowardthemiddleofthegeopoliticalrange,suchasBrazil,India,andMexico,also

tradeovergeopoliticaldistancessimilartotheglobalaverage.Why?Becausetheirtradeis

mostlywitheconomiesateitherpoleofthespectrum.Overall,only8percentofglobalgoods

tradeflowsamongeconomiesthatsitbetweentwoandeightonthezero-to-tenscale.Europe

isdifferent;itspoliticalalignmentandeconomicintegrationofindividualeconomiesgiveriseto

tradeovershortergeopoliticaldistances.ButevenEuropehashistoricallyreliedongeopoliticallydistantpartnersforcertaincriticalproducts,suchasRussiaforenergyresourcespriorto2022.

Tradewithgeopoliticallydistantpartnerscanbeperceivedasasourceofeconomicvulnerability.

Someeconomiesmayrelyongeopoliticallydistantpartners’demandfortheirexports.Iftradefrictionsarise—astheydidinrecentyearsforAustralia’sexportsofcoal,wine,andbarleyto

China,forexample—theexportingeconomymayloseaccesstokeymarkets.Othereconomiesmayrelyongeopoliticallydistantpartnersfortheirimportsofkeyproducts.Forinstance,

althoughGermany’saveragegeopoliticaldistanceoftradewaslowerin2021thanthatofmanyotherlargeeconomies,itsrelianceonRussia’sexportsofenergyproductsledtoasubstantial,anddifficult,tradereconfigurationfollowingRussia’sinvasionofUkraine.

Nearly40percentoftradeingloballyconcentratedgoodsisbetweenmoregeopoliticallydistantpartners

Concentratedtradebetweengeopoliticallydistantpartnersmaybeacandidatefor

reconfiguration.Today,nearly20percentofglobalgoodstradeisbetweenmoregeopoliticallydistanteconomies,definedhereasmorethaneightunitsapartonthegeopoliticaldistance

scale(Exhibit3).Andthattradeisskewedtowardproductsthatarehighlyconcentratedintheir

10Geopoliticsandthegeometryofglobaltrade

4

7

Region

○Asia–Paciic

○Europe303

○LatinAmerica

andCaribbean4

○MiddleEastand

NorthAfrica

○NorthAmerica

○OtherEuropeanandCentralAsia

○Sub-SaharanAfrica

6

5

Average

geopolitical

distance

oftrade,13

0–10scale

Globalaverage

1

Exhibit2

Manylargeeconomieshavetraderelationshipswithpartnersthatarerelativelydiferentfromthemingeopoliticalterms.

Goodstraderelationships,2021,andUNGeneralAssemblyvotingpatterns,2005–22

○

US

。Türkiye

Circlesize=

valueofgoods

trade,2021

Australia

South

JapanKorea

MexicoBrazil

○

○

China

Russia

SaudiArabia○

0SouthAfrica

India

Argentina

UKGermany

Italy

○

France

Canada

○Indonesia

0

○

0246810

Geopoliticalposition,20–10scale

Note:Exhibitrepresentsalleconomiesforwhichcomplete2021tradedataareavailableandthatrecordvotesatUNGeneralAssembly(UNGA).

1Value-weightedaveragediferencebetweengeopoliticalpositionofreferenceeconomy(seefootnote2)andgeopoliticalpositionoftradepartnereconomy

acrossgoodsimportsandexports.

2CalculatedbyprincipalcomponentanalysisofUNGAvotingrecordsin2005–22,reducedtoa0–10scale.Toexcludeproceduralvotes,asubsetofUNGAvotesareconsidered.For2005–21,theseexcludevotesnotdesignatedas“important”in“VotingpracticesintheUnitedNations,”USDepartmentofState.For2022,votesaddressingthewarinUkraineareincluded.

3Europe30includestheEuropeanUnionplusNorway,Switzerland,andtheUnitedKingdom.

4LatinAmericaandCaribbeanexcludesMexico,whichhasbeenincludedinNorthAmerica.

Source:UNComtrade;Voeten(2017)andUNDigitalLibrary;McKinseyGlobalInstituteanalysis

McKinsey&Company

sourcing—almost40percentoftradeingloballyconcentratedproductsisbetweengeopoliticallydistanteconomies.

Importantexamplesofgloballyconcentratedproductstravelingabove-averagegeopoliticaldistancesfromexportersthataremoregeopoliticallysimilartotheUnitedStatesincludeiron

ore,soybeans,andflat-panel-displaymanufacturingequipment.Ironoreismainlyexportedby

Australia,withmorethan80percentofitsexportsflowingtoChina.AndChinaistheworld’slargestsoybeanimporter,withthemajorityofitsimportssourcedfromtheUnitedStatesandBrazil.

Otherproducts,suchaslaptops,cellphones,andcomputermonitors,travelabove-average

geopoliticaldistances,astheymainlyflowfromChinatoadvancedeconomiessuchasEuropeandtheUnitedStates(Exhibits4and5).ThisprofileshowsChina’sroleasaglobalprocessinghub—almost20percentofallflowsofgloballyconcentratedproductsgotoChina,often

Geopoliticsandthegeometryofglobaltrade11

Exhibit3

Nearly20percentofglobalgoodstradeisbetweengeopoliticallydistanteconomies.

Valueofgoodstradebygeopoliticaldistancetraveled,12021,$trillion

Allproducts$22trillion

8

6

4

2

0

Globally

concentratedproducts2

$2.3trillion

0.80.60.40.2

0

17%

012345678910

39%

012345678910

Examplegeopoliticaldistances,0–10scale

GermanySouthKoreaMexicoBrazil