What's next for the global economy in 2026? | Counting the Cost

Counting the Cost: 2025 – A Year of Tariffs & Global Reordering

Key Concepts:

• Tariffs: Taxes imposed on imported or exported goods, impacting trade flows and costs.
• Trade Diversion: Shifting of trade from one country to another due to tariff changes.
• Critical Minerals: Resources essential for modern technologies (AI, renewable energy) driving geopolitical competition.
• Global South: Developing nations seeking greater influence in international affairs.
• Reshoring/Nearshoring: Bringing manufacturing back to the home country or closer geographically.
• Artificial Intelligence (AI): Rapidly evolving technology with potential for productivity gains and job displacement.
• Fiscal Stimulus: Government spending or tax cuts to boost economic activity.
• Debt Structure: The composition and terms of a country's debt, impacting financial stability.

1. Global Economic Landscape in 2025

The year 2025 is characterized by a significant global economic reordering, driven primarily by the re-imposition of tariffs by the US under President Donald Trump. This has led to a reshaping of global trade patterns, supply chain adjustments, and a scramble for influence among major economies. Despite initial fears, the global economy has demonstrated “resilience,” largely due to countries adapting supply chains to avoid tariffs. However, rising costs, labor shortages, a housing crunch, and mounting debt continue to squeeze households. The overarching themes are disruption and uncertainty.

2. US Tariffs and Global Trade Impact

In April 2025, the US imposed duties on goods from nearly all countries. While some nations (EU, UK) negotiated new deals, others are still in negotiations. The impact has been most pronounced on China, forcing a shift in supply chains towards Southeast Asia and Africa, exacerbating existing issues like a property crisis and weak consumption. Despite this, China recorded a $1 trillion trade surplus – a milestone unmatched by any other nation. This was achieved by reducing imports and focusing on exports, creating tensions with trading partners concerned about the Yuan’s performance. David Luben (Chattam House) notes the actual tariffs implemented were lower than initially threatened, and countries proved “nimble” at reconfiguring supply chains, contributing to the surprising resilience of global trade. He suggests trade experienced “diversion” rather than “destruction.”

3. China’s Strategic Response & the Critical Minerals Boom

To counter US tariffs and revive growth, China is heavily investing in cutting-edge technology and securing access to critical minerals – essential for powering these technologies. This has triggered a “critical minerals boom” in Africa, with China, Europe, and the US all vying for access to resources. African nations are leveraging this competition to demand a larger share of processing and manufacturing within the continent. Trinian (Nexus Research) highlights China’s deployment of capital to Southeast Asia as a key strategy to maintain exports, even as domestic consumption remains weak.

4. The Global South’s Rising Influence

2025 marked a significant moment for the Global South, with South Africa, during its G20 presidency, advocating for tackling wealth inequality and ensuring inclusivity. This reflects a broader trend of developing nations demanding a greater voice in shaping international rules. Xander Sturman (Africa Practice) emphasizes that African nations are diversifying trade partnerships (UAE, Japan, Brazil, India) and exploring unconventional financing options, reducing reliance on traditional aid.

5. Europe’s Security Concerns & Debt Challenges

Security fears, particularly related to the situation in Ukraine, are prompting Europe to reassess its priorities and increase defense spending to record levels. However, countries like France are facing criticism for prioritizing military spending over social welfare, given existing high debt levels. Ugo Pinea (Geneva Graduate Institute) notes that while debt levels are high, deflation in commodity prices is currently helping to keep bond markets relatively stable.

6. The AI Revolution & Labor Market Disruption

The artificial intelligence revolution continues to reshape the working world, with tech giants investing billions in the “AI arms race.” While proponents believe AI will boost productivity, concerns remain about potential job displacement. Ugo Pinea points to historical parallels with the first industrial revolution, suggesting initial disruption could be followed by long-term productivity gains, but also a period of hardship for many.

7. Economic Outlook for 2026

The outlook for 2026 is cautiously pessimistic. While a recession is not the baseline scenario for the US and Europe, both economies are showing signs of slowing down. China’s retail sales growth has collapsed, and fixed asset investment is negative. Labor demand in the US is softening. David Luben suggests that a slowdown in these two economic engines could negatively impact global trade and household finances. He cautions that the global economy performed better than expected in 2025, and 2026 may present more challenges.

8. Household Impact & Cost of Living

Individuals are feeling the impact of economic changes. Examples cited include increased costs for businesses due to tariffs (Hershey, Pennsylvania), rising living expenses for pensioners, and general concerns about affordability. Fuel, food, and tourism costs are all increasing.

Notable Quotes:

• David Luben: “The global impact of the tariff announcements…has been remarkably small.”
• Trinian: “China managed to grow through two channels…not really importing from the world.”
• Xander Sturman: “Many of these countries have been able to find completely new avenues and trade partners.”
• Ugo Pinea: “Artificial intelligence could disrupt the way we work a little bit how it happened during the first industrial revolution.”
• David Luben: “The probability seems to be that there's going to be some moderate slowdown…and that should have some negative consequences for households globally.”

Conclusion:

2025 has been a year of significant global economic shifts, driven by US tariffs and a re-evaluation of international alliances. While the global economy has shown resilience, underlying challenges remain, including rising costs, debt, and the potential for disruption from AI. The outlook for 2026 is uncertain, with a potential slowdown in major economies and continued pressure on households. The rise of the Global South and the competition for critical minerals are key trends shaping the future of the global economy.