Can AI and regionalisation restructure global trade?

As tariffs rise and alliances shift in a fractured geopolitical landscape, technology may help in redrawing the trade map

Featured faculty: Wu Jing
Written by Putro Harnowo

The meeting between Chinese President Xi Jinping and his US counterpart Donald Trump in late October brought a cooling breeze over the simmering trade tensions between the global superpowers. After months of tariff war, which reached 145 per cent at some point, both countries finally struck a deal to de-escalate with a year-long trade truce.

The summit signals a new hope that competition between the world’s two largest economies can be managed without sliding into open conflict. It was a positive development for both after years of deteriorating trade relations, while also giving a well-deserved time for other countries to revisit their supply chain resilience.

“Since 2018, or the onset of the US-China trade war, we have witnessed the global supply chain enter an era of high volatility, although it may have started as early as 2015,” says Wu Jing, Professor in the Department of Decisions, Operations, and Technology at the Chinese University of Hong Kong (CUHK) Business School.

Speaking during the 2025 Global Supply Chains and Logistics Summit organised by the Asian Institute of Supply Chains and Logistics, Professor Wu, who is also an associate director at the institute, delves into strategies for businesses in navigating uncertainty and fragile supply chains.

He explains that before the frictions, the world had seen globalisation peak. Cost optimisation drove companies headquartered in developed economies to move manufacturing activities to emerging markets. This offshoring was particularly popular in the wake of the 2008 financial crisis.

However, global trade started to slow down in 2015, and companies began to relocate back. “In China, the appreciation of the Chinese yuan against the US dollar and increasing labour costs have made the manufacturing cost more expensive,” Professor Wu adds.

The US-China trade war further fuelled the drift as the increasing tariffs and the decoupling risk forced significant manufacturing orders to move outside of China. In 2022, the Russia-Ukraine war and the pandemic brought the trends of nearshoring and friendshoring, where companies relocate operations to nearby or politically aligned jurisdictions to reduce geopolitical risks.

New regulations have also changed the landscape of the traditional supply chain. For instance, the EU Carbon Border Adjustment Mechanism imposes tariffs on imported carbon-intensive products, which, although it sounds good for the planet, has raised concerns among trading partners like the US, China, India, and Brazil.

“The traditional global trade systems are becoming more challenging to solve the current problems,” says Professor Wu. “We probably need to say goodbye to a certain level of trade globalisation and hello to economic regionalisation.”

“The traditional global trade systems are becoming more challenging to solve the current problems. We probably need to say goodbye to a certain level of trade globalisation and hello to economic regionalisation.”

Professor Wu Jing

Restructuring global trade with regionalisation and technology

In a recent interview with Reuters, the director of the World Trade Organisation admitted that only 72 per cent of global trade is now happening under the organisation’s rules, the largest disruption to global trade rules in the past 80 years, and the number could fall further. This means the rest of the cross-border trade currently happens through special agreements between countries.

“We’re seeing a growing number of regional trade agreements, such as the Regional Comprehensive Economic Partnership and the US-Mexico-Canada Agreement, among roughly 400 regional deals covering goods, investment, labour, and technology,” says Professor Wu. “This isn’t an adjustment, but a restructuring.”

In this new trend, regional integration will be crucial in allowing countries to facilitate the flow of trade, capital, energy, people, and ideas. However, global opinions seem to be at a crossroads. The July report from the Pew Research Centre shows that among 28,000 respondents in 24 countries, opinions of the US had worsened, while China is increasingly seen in a more favourable light.

Most of the countries still prioritise the US when it comes to economic ties, but the views among high-income countries have moved in the direction of China. “This opinion storm could shift alliances, trade flows, and investments going forward,” he adds.

As the world shifts from global to regional networks and from cost-cutting to flexibility-first strategies, Professor Wu highlights that supply chain resilience is born from granular data and forged in lightning-fast decisions. Therefore, building supply chains using AI-driven tools and data-powered insights would be a significant advantage, and China may hold a relative advantage in this area.

The UN 2024 Patent Landscape Report shows the country dominates in generative AI patents by filing more than 38,000 patents between 2014 and 2023, surpassing the US as the closest contender with 6,276 patents. Overall, China has been leading in global patent applications by filing 1.64 million applications in 2023, leaving the US as runner-up with 518,364 filings, according to the World Intellectual Property Organisation’s report.

“By transitioning technological capabilities into an AI-driven model and strategically utilising data assets, firms would be able to position themselves to navigate the restructuring of the supply chain,” Professor Wu adds. “The integration of big data and AI will facilitate enhanced adaptability and enable informed, real-time decision-making across logistics operations.”