Much has been made of US efforts to reduce reliance on China, while the EU has made similar efforts in recent years to decouple from Russian oil and gas supplies. But rerouting global trade has not proven that simple, despite trade diversification becoming a political trend.
Even US allies have been caught out as Donald Trump unleashes unpredictable and fluctuating tariff rates on friend and foe alike. Despite pledging hundreds of billions of dollars in US investments, the EU and Japan have been hit with 15% tariffs (which apply on top of existing tariffs in the case of Japan), while Switzerland (39%) and the Philippines (19%) also face duties.
Meanwhile, the Brics countries are promoting alternatives payment systems to bypass the dollar. On the surface this looks like a major departure from the globalised economy of recent decades, yet, despite almost a decade having passed since Trump first began his trade war, surprisingly little has changed.
The US still runs a large trade deficit in goods and a surplus in services, which Trump’s fixation on the US goods deficit ignores. US firms still manufacture in China, which has supported their global competitiveness, and China remains a large consumer market generating $1-trillion a year for US firms.
Nations like China and Japan have also typically reinvested their surplus dollars (earned from trade) back into the US treasury market, making it cheaper for the US government to fund its expenditure. This is why Trump’s policies have had an adverse effect on the US bond market, making the trade in goods deficit a pretty poor justification for tariffs.
Perhaps this is why other excuses have been made to justify the levies, including dissatisfaction with the judiciary in Brazil, BEE laws in SA and Indian oil imports from Russia, which all target Brics countries for other unrelated “offences”.
That said, Trump has also posted on his social media platform that concluding a trade deal with Canada could be difficult if Ottawa recognises Palestine, and Switzerland’s tariffs are solely the result of its trade surplus. The only logical conclusion is that anyone could be punished.
Combined with the trade disruptions experienced during the coronavirus pandemic, the risks associated with an over-reliance on a single currency, energy supplier or trade partner, have become more pronounced, making efforts at trade diversification a visible political trend.
Nevertheless, geographic concentrations of minerals, existing supply chain efficiencies and cost competitiveness, remain major factors in determining global trade flows, which is why the US continues to purchase Russian uranium despite its complaints about India, and China remains the world’s largest manufacturer.
A similar reality is playing out between the US and SA. Though 30% tariffs seem terrifying, and will undoubtedly hurt many farmers and manufacturers, most of SA’s trade with the US consists of critical mineral exports, which have been exempted. This means only about 2% of SA’s total exports could end up being affected.
While this remains a concern, it’s unclear that appeasing the White House would have made much difference. If SA had dropped its International Court of Justice case, left Brics, and rewritten all its BEE laws, Trump could still point to the trade deficit, as seen with Switzerland.
As a result of this uncertainty, trade diversification, which was already gaining traction, has now become even more important to everyone, from big countries to little ones, from East to West, but the benefits of free trade remain the same.
This contradiction between protectionism and trade diversification, on the one hand, and the inherent efficiency of free trade, on the other, is not easy to reconcile, especially when political considerations become a factor.
The rest of Europe has traded with Russia for centuries based on sound economic logic, with Russian traders supplying furs, wax and honey during the medieval period, followed by grains and lumber, and then metals and energy in modern times. However, the war in Ukraine led to political interference in trade decisions, with severe economic consequences.
Despite efforts at diversification, electricity prices in Germany remain elevated. Though gas supplies from Algeria, Qatar and the US have increased, Russia remains in the top three natural gas suppliers to Europe, with gas from Russia that used to be transported via pipelines having to be imported as LNG at a far higher cost.
Combined with Trump’s tariffs and a surge in Chinese vehicle production, this is a nightmare for German carmakers. BMW’s profits have fallen 29% in the first half of 2025 compared with last year, and Mercedes saw second-quarter net profit decline by a whopping 69%.
These trade disruptions have other knock-on effects, like slower economic growth rates and higher debt servicing costs, which in turn have hurt Europe’s push to develop renewables. Germany was forced to restart coal plants after Nord Stream was sabotaged, while Polish citizens were permitted to cut down trees in public forests during the first months of the war.
The benefits of free trade should not be underestimated, which is why Brics’ efforts to protect themselves from financial sanctions appear more important than ever. The New Development Bank, designed to provide an alternative to Western-dominated institutions such as the World Bank and IMF, is a testament to this effort, as is the recently launched Brics Pay system, designed to facilitate trade in domestic countries.
The Brics developed alternative payment systems so the nations could continue trading with each other in defiance of Western sanctions. But now that the US has further disrupted global trade with tariffs, there are additional benefits to trade in local currencies at a time when countries will need to find new export markets for goods that once went to the US.
By promoting local currency trade, the Brics hope to insulate themselves from the volatility and unpredictability of US foreign policy while increasing the competitiveness of inter-Brics trade. This diversification strategy has rapidly progressed from a hypothetical necessity to a real one, with the recent expansion of the bloc providing the requisite critical mass.
At the same time, demand and supply dynamics between countries will not change overnight and politicians won’t always get their own way. The Brics will still seek to improve relations with the West, whose own fantasy of decoupling from Russia and China has proven unfeasible.
So, while the political trend of trade diversification gathers momentum, actual trade flows may remain largely the same. Instead of an enormous reordering of the global trade system, the more likely outcome is that countries that embrace free trade will enjoy the economic benefits, while those who favour politics and protectionism will not.
• Shubitz is an independent Brics analyst.
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