UN research has found a “noticeable rise” in trade between countries that are politically aligned and a corresponding drop in trade partner diversity, as geopolitical tensions increasingly reshape supply chains. 

Bilateral trade between countries with similar political stances – a trend known as friendshoring – has risen by more than 2% in the year since Q3 2022, despite an overall slump in the value of goods being traded. 

At the same time, there has been a concentration of global trade within major trade relationships, according to a report published today by the United Nations Conference on Trade and Development (UNCTAD). 

Much of the change has been driven by Russia’s invasion of Ukraine and the subsequent introduction of sanctions across much of the west, the report finds. 

Ukraine was 10% more dependent on trade with the European Union in Q3 this year compared to the same period in 2022, with trade dependence calculated as the ratio between bilateral trade and overall volumes. 

Over the same 12 months, Russia’s trade dependence on the EU dropped by 6.4%, while its dependence on China increased by 8%. Sanctions and de-risking have profoundly reshaped Russian trade flows, particularly in energy. 

Trade tensions between China and the US are also having a wider effect on global trade patterns. 

“These factors not only impact the economies directly involved but also indirectly influence trade dynamics of other economies,” UNCTAD says. 

Iraq, Australia and Vietnam are also more reliant on trade with China than a year ago, whereas Taiwan, the US, Korea and Japan have all seen dependency drop. 

The findings follow a September warning from the World Trade Organization (WTO) that friendshoring could create “a more fragmented world dominated by regional trade blocs”. 

The WTO split trading nations into two groups based on voting patterns at the UN General Assembly, revealing that goods trade between nations within the same bloc had grown 4-6% more quickly than trade between nations from different blocs. 

The result could be a “downward spiral” in trade relations that is difficult to reverse, the WTO added. 

Last month, a Standard Chartered survey of over 3,000 business leaders found varying degrees of confidence about the future of globalised trade, prompting calls for a more inclusive and sustainable model. 

The UNCTAD report also presents a gloomy outlook for trade.  

The value of goods trade in 2023 is expected to be 8% lower than last year, a “notable contraction” totalling around US$2tn. 

This shift is “primarily influenced by diminished demand in developed nations, underperformance in East Asia economies, and a decrease in commodity prices”, it says. 

The slump is particularly pronounced for South-South trade and trade between economies in Asia. 

“Looking ahead to 2024, the forecast for global trade remains highly uncertain and generally pessimistic,” UNCTAD adds.  

“While certain economic indicators hint at potential improvements, persistent geopolitical tensions, high levels of debt, and widespread economic fragility are anticipated to exert negative influences on global trade patterns.”