At a glance
- Amid pressure on US–China trade, firms may look to rearrange sourcing to alternative suppliers. If they cannot, firms might instead reduce purchases, replace imported products with something similar, or ramp up domestic production. These alternatives require a combination of sacrifice, resources, know-how, and time.
- We introduce a “rearrangement ratio” to quantify how hard the change might be. Thirty-five percent of US imports from China have a ratio less than 0.1, signifying a global available export market ten times larger than current US imports from China—think T-shirts or logic chips. For higher ratios, rearrangement becomes harder, and for the 5 percent of trade with a ratio greater than 1.0—for example, rare earth magnets—US imports from China exceed available global exports.
- Consumer goods are harder to rearrange than business inputs. Sixty-one percent of business input imports have a rearrangement ratio less than 0.1, versus 16 percent of consumer goods. Major products like laptops, smartphones, and toys are harder to rearrange.
- Europe emerges as the fulcrum of trade rearrangement. Across nine varied simulations, European imports from China and exports to the United States both go up by nearly $200 billion. As intra-European trade shifts to the United States, it leaves holes filled by increased Chinese exports—assuming Europe does not choose to alter its own trade policies. Others will be affected, too: exports to the United States from as many as 70 countries may increase by more than 10 percent.
- Prepare for resilience in a reordering world. Strategies will need to handle continued uncertainty and ongoing shifts. Customers will buy new things from new sources and use them in new ways. Granularity is key. Shifts across many thousands of products will reshape the geometry of global trade.
Trade Rearrangement in the Global Market: An Analytical Perspective
Tariffs have surged into the public spotlight. On April 2, 2025, the United States unveiled country-specific tariffs, defined by a formula based on goods trade deficits. Tariffs have substantially receded from those highs since and may continue to shift in the coming weeks and months as negotiations and court challenges unfold.
Yet substantial trade tensions between the United States and China could be here to stay. When combined with prior policy measures, tariffs and geopolitics clearly correspond: economies that are more “geopolitically distant” from the United States, particularly China, tend to face the highest tariffs. If current settings persist, US imports may shift from China to countries that face lower tariffs and historically have been more geopolitically aligned with the United States.
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A line graph with four lines shows an upward, left-to-right trend in US trade-weighted average tariffs as the geopolitical distance from the United States increases. The horizontal axis, ranging from 0 to 10, represents the geopolitical distance from the US, with selected economies like Canada, South Korea, Mexico, Brazil, Nigeria, Vietnam, and China marked. The vertical axis, ranging from 0 percent to 110 percent, shows the US trade-weighted average tariff percentage. The graph includes data points for the years 2017, 2024, and two specific dates in 2025: April 2, when reciprocal tariffs were announced, and May 14, when China’s reciprocal tariff was reduced to 10 percent. The graph highlights a notable spike during the period of retaliatory tariffs between the US and China from April 9 to May 13, 2025.
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Even before 2025, the geometry of trade had been shifting along geopolitical lines. The average geopolitical distance of global goods started to compress beginning around 2018, particularly for the United States and China—evidence of so-called friendshoring. US imports from China fell by about 20 percent, or more than $100 billion, between 2018 and 2024, while total US imports rose by almost 30 percent over the same period.
Recent events may accelerate this realignment. Many US firms are urgently considering alternative sources of supply. Without a shift to different sources, prices may rise, and US companies and consumers might need to reduce—making do with fewer products or inputs—or replace, substituting one product for another sufficiently similar one. The higher the tariffs, the more significant the potential reduction or replacement.
An alternative is to ramp up existing US manufacturing capabilities (cars) and rebuild dormant ones (chips and ships). This change could happen in other countries, too. But it takes time, money, and know-how. And at least in the case of the United States, where wages are high, it may not be economically viable in some sectors.
Image description:
Four horizontal stacked bar charts show the distribution of the United States’ imports from China by rearrangement ratio, emphasizing the complexity of substituting these imports, with a column on the right side indicating the share of US imports from China, totaling 100 percent. The charts correspond to four categories: all US imports from China, goods for final consumption, intermediate goods, and capital goods. Each category is represented by a bar segmented into six parts, indicating the US China-rearrangement ratio, from 0.1 (easier to rearrange) to over 1.25 (impossible to rearrange). For all US imports from China, 36 percent fall into the 0 to 0.1 range, while 5 percent are in the 1.25+ range. Goods for final consumption show 34 percent in the 0.25 to 0.5 range. Intermediate goods are predominantly in the 0 to 0.1 range at 61 percent, and capital goods have 40 percent in the 0 to 0.1 range.
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The current environment encourages rearrangement of trade between the United States and China. Differential tariffs across countries create a “tariff cost curve.” For example, China still faces higher rates than other economies, even excluding those levied under the International Emergency Economic Powers Act, which are currently under legal debate.
But as long as some countries see higher tariffs (or other trade barriers) than others, it provides an impetus for US firms to consider shifting sourcing from higher-tariff economies on the left of the curve to lower-tariff countries on the right.
Image description:
A vertical stacked bar chart shows economies in columns, with the tallest bar on the left and the shortest on the right. The height of the bars corresponds with US tariff levels, with segments corresponding to when portions of the tariffs were announced or implemented over 2025. The width of the bars corresponds with the value of US imports from each economy. The bar for Mainland China is tallest at the left with a tariff of about 55% and imports of about $450 billion. A horizontal line across the chart at 19% on the vertical axis indicates the average tariff globally, using April 2 settings, if they are implemented as announced. Bars labeled on the chart above that 19% level include Vietnam, Japan, India, South Korea, and Germany. Others below that level include Italy, Taiwan, China, UK, Mexico, Ireland, and Canada.
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Conclusion
No matter the balance between rearranging—or reducing, replacing, and ramping up—the current disruption suggests that customers will buy new things, from new sources, and use them in new ways. US consumers may switch brands more frequently and try new products from home or abroad. Producers may take margin or market share in the domestic market. Global sellers could get a chance to crack the US consumer market. Chinese producers may have greater opportunities to expand into markets that are currently served by others. Flexible payments systems, diversified currency baskets, and liquidity measures might grow more important. Strategy certainly will.
Specifics matter. Shifts may look very different across the many thousands of products that make up the global web of trade. When making strategic decisions for their organizations, leaders should examine fine-grained product market dynamics to understand where there may be surpluses or shortages, price sensitivity or rigidity, and granular pockets of decline or growth.
Trade rearrangement promises to reshape the geometry of global trade, setting the backdrop as firms build resilience in a reordering world.
FAQ
Q: How can companies prepare for trade rearrangement?
A: Companies can prepare by analyzing their current supply chains, identifying alternative sourcing options, and evaluating the potential impact of tariffs and geopolitical shifts on their operations. Developing contingency plans, building flexibility into supply chains, and staying informed about market trends are key steps in preparing for trade rearrangement.
References
1. McKinsey & Company. (2025). The Great Trade Rearrangement: Navigating the Shifting Geopolitical Landscape.
2. Gartner Research. (2025). The Future of Global Trade: Trends and Strategies for Success.
3. Boston Consulting Group. (2025). Adapting to Trade Disruptions: A Strategic Framework for Organizations.
