The fragmentation of the global economy is not merely an economic concern. Climate concerns barely feature in discussions around the breakdown of globalisation. Most debates focus on slower growth, weaker trade and rising inefficiencies. But a fragmented trading order could also leave the world more carbon-intensive.
For years, production gravitated towards places that could manufacture goods most cheaply and efficiently. Supply chains became global because it made economic sense. Components crossed borders multiple times before turning into finished products, allowing companies to cut costs and operate at scale. That system created obvious distortions and inequalities like domestic job losses and dependence on low-wage labour abroad, but it also avoided unnecessary duplication of production and infrastructure.
The current US administration's approach to trade differs materially from its first term. Where Trump's earlier tenure targeted China and select trading partners, the second represents a wholesale assault on multilateral trade norms, encompassing allies and adversaries alike.
The recent Supreme Court ruling tempered the initial tariff design, yet alternative routes to reducing the US trade deficit are being actively explored. Simultaneously, the administration has continued obstructing judicial appointments to the WTO's appellate body, effectively crippling the dispute settlement system. The core economic argument advanced in Washington, that decades of cheap and subsidised imports have inflated the US trade deficit and hollowed out domestic industry, obscures a basic accounting identity: a current account deficit reflects consumption in excess of production. Addressing it requires restraining demand, not stimulating it. Yet the "Big Beautiful Bill" and pressure for lower interest rates do precisely the opposite, deepening the very imbalance they purport to correct.
Production Shifts
The environmental consequences of this fragmentation are likely to emerge through three interconnected channels. The first is the reconfiguration of production and trade patterns. If tariffs succeed in repatriating manufacturing to the United States, domestic producers will increasingly substitute capital-intensive methods for the labour-intensive processes that characterised imported goods, particularly from China. In sectors such as textiles and garments, and given the administration's concurrent push for fossil fuel-led energy expansion, this substitution could prove significantly more emissions-intensive than the production it displaces. Where affected exporters retaliate and begin producing domestically under similar conditions, carbon emissions may rise at both ends of the supply chain.
The second channel involves trade diversion. Under a regime of high tariffs on China, the United States may increasingly import these products from other countries. Evidence suggests that many imports previously sourced from China have shifted toward South-East Asian and Latin American economies, where industrial emission intensities frequently exceed those of Chinese manufacturing. The net effect on global emissions may therefore be adverse even where individual trade flows appear to reroute efficiently. Supply chain reconfiguration further compounds the problem: parallel production facilities operating below optimal scale, accompanied by additional construction, raw material extraction, and logistics, generate emissions beyond what consolidated, efficient supply chains would require.
Critical minerals offer a particularly sharp illustration. China's near-monopoly over rare earth processing and critical mineral supply chains means that any serious decoupling effort requires building new mining and processing capacity across several countries simultaneously. Each of those sites brings its own emissions load, frequently in jurisdictions where environmental oversight is weak.
Arguably the most structurally damaging is what happens to the Environmental Kuznets dynamic. The curve's logic rests on a familiar pattern: pollution worsens through early industrialisation, then falls as incomes rise and populations begin demanding cleaner growth. Fragmentation puts pressure on both ends of that arc. In wealthier economies, sluggish growth steadily narrows the political appetite for expensive climate commitments. In developing countries still on the rising portion of the curve, diverted industrial activity adds to output under regulatory regimes that were never designed to absorb it. The net global emissions may increase at both ends. The result is not cleaner trade reorientation but dirtier growth distributed across borders.
Fragmentation rolls back the allocative gains and economies of scale that open trade had built up over decades, and does so precisely when the conditions for sustained emissions reduction were, however slowly, beginning to take hold. The climate costs of protectionism have attracted far less attention than the economic ones. They deserve rather more. For countries that take climate commitments seriously, resisting fragmentation is not merely a matter of trade ideology. It may, in practical terms, be a matter of enduring the next three years.
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