Signal McKinsey Global Institute: US-China Decoupling Cut 2025 Global Trade Growth by 10%

Summary

McKinsey Global Institute's report "Geopolitics and the geometry of global trade: 2026 update" found that the decline in US-China trade reduced global trade growth by about 10 percent over the year, with reduced US imports from China accounting for roughly 85% of that decrease. The average effective US tariff rate jumped from 2.4% in late 2024 to about 22% in early April 2025, its highest level in about a century, before a series of trade agreements and policy adjustments brought it back down to around 15% by year-end. More than $165 billion in trade shifted away from the US-China corridor as the tariff increases deepened an already-underway geopolitical realignment, creating supply gaps in the US and underutilized capacity in China that forced firms to seek new suppliers and buyers. Despite this bilateral decoupling, global trade overall still grew in 2025: the WTO's global trade outlook found 4.6% growth in global goods trade, driven partly by AI-related products and by US importers front-loading shipments to avoid tariffs. Global shipments of AI-related hardware rose 37% for the year, including a 66% surge in the United States, while Chinese exports held steady overall as China shifted toward higher-value products like electric vehicles, industrial components, and intermediate inputs such as memory chips (up 9%) sold to Europe and emerging markets.