Trade and investment flows between the U.S.-led West and the Global South – represented by the BRICS – are drying up in an increasingly direct, proxy and hybrid warfare.

Ideological and political underpinnings to this epochal change of world economy stems from the U.S. assessment that its “rules based international order” is challenged by Russia and China.

The wars in central Europe and in the Middle East are part of that confrontation, and so are growing security tensions with China and an endangered armistice on the Korean Peninsula.

All that is taking a heavy toll on trans-Atlantic economy.

Pervasive and punitive sanctions and errors of economic management have pushed the European Union (E.U.) into a serious cyclical downturn.

The U.S. economy is doing better because – as it befits an election year -- tough decisions about price stability and a calamitous state of public finances are left for the next administration(s). The incumbent Democrats are ignoring inflation and monetizing an irresponsible fiscal policy.

In that context, impediments to trade with Russia and China are instruments of containment and suppression of their global power projections.

A serious damage to world trade

That is particularly the case with Russia whose military might is considered as an immediate security threat to the Western world order.

The E.U. is at the forefront of the war effort against Russia. Last year, the E.U. trade with Russia literally collapsed – crashing 66% from the year earlier, as imports of Russian goods were slashed to €51 billion from €203 billion.

Similarly, the U.S. trade with Russia is a story of vanishing bilateral ties: exports have been whittled down last year to half a billion dollars, and imports of $5 billion are less than one-third of what they were in 2022.

All that will get worse in the months ahead. The E.U. is furious because it could not “destroy” (sic) the Russian economy with debilitating sanctions, embargoes on Moscow’s energy trades and wide-ranging freezings and confiscations of Russian official and private assets.

Surprisingly, in the middle of that mayhem the Russian economy continued to recover briskly. According to the IMF, Russia’s GDP grew 3% last year (compared with E.U.’s 0.6% GDP growth). For this year, the IMF sees the Russian economy on a stable 2.6% growth path.

The West’s trade with China is an equally difficult issue, because political pressures for “decoupling” and “de-risking” China trades are increasing in the U.S. and the E.U.

Last year, the U.S.-China trade declined 17% from 2022, as Chinese exports to the U.S. fell 20%.

According to Chinese media, the business community is diversifying its trade patterns in response to an allegedly hostile and unpredictable treatment in U.S. markets. But the U.S. business community in China takes a more positive view. Indeed, the American Chamber of Commerce in China reports that its members consider China’s huge markets attractive and important for their “globally competitive" development strategies.

China trade with the E.U. last year also fell 14% because Chinese exports to the trading bloc contracted 18%. Whether that was part of a European de-risking toward China or a Chinese attempt to keep a lower trade profile is not the key issue.

“Coercion, unilateralism, bullying”

The E.U. Chamber of Commerce in China believes that China’s further market opening, support of economic growth and a more favorable treatment of foreign direct investments are the most important policy commitments they are looking for. And, interestingly, the European businesses seem satisfied with China’s efforts in all those areas.

That is a striking difference compared to a hostile rhetoric on the U.S. side.

Washington’s chief trade representative believes that a declining trade with China is not “necessarily negative,” because it indicates a “diversification on both sides” -- a euphemism for decoupling and de-risking, and a strange view of income effects of falling trade volumes.

That comment also comes in the middle of an American trade war with China about advanced microchips, “dual use technologies,” and the latest U.S. trade sanctions on Chinese companies suspected of “supporting Russia’s war effort in Ukraine.”

No wonder all that got Beijing bristling about American “economic coercion, unilateralism and bullying” – terms that capture everything China, a prominent Global South leader, thinks about the American “rules based international order.”

That’s the geopolitical and geoeconomic impasse we are facing now.

And that means that global trade and investment flows will be increasingly directed along the lines of a geopolitically fragmented world community.

Economic growth, employment and incomes will all be negatively affected in such a woefully suboptimal world economic system.