The wars in Europe and in the Middle East, ongoing military confrontations in the South China Sea and nuclear capable ballistic missile firings on the Korean Peninsula are all part of a global fight between West’s “liberal democracies” and “autocratic societies.”

There is nothing “hybrid” or “proxy” here. It’s a shooting war -- with nukes on the ready -- in case somebody makes a “wrong” move. One can call that a “third world war,” but certainly not a “second cold war.”

In spite of that, the world economy continues to advance while cross-border flows of goods, services and finance are increasingly transacted among blocs of friendly nations.

What we are seeing now is an acceleration of the process initiated by Obama administration with its “pivot to Asia” (a euphemism for containing China) in 2012. That was followed by Ukraine’s coup d’etat in 2014 and the ensuing civil war, Syria’s broadening civil war in 2015, Russia’s “special military operation” in Ukraine in 2022 and a new phase of the Israeli-Palestinian war in October 2023.

“Pivot to Asia” is just a more bellicose focus on old U.S.-China problems. Nothing has changed since Obama met China’s newly elected leader Xi Jinping in Sunnylands, California, on June 7-8, 2013. Obama called the meeting “terrific,” but the only thing they agreed on, after eight hours of talks, was to reduce greenhouse gasses. Trade disputes got worse. Conflicts about China’s maritime borders, Taiwan, Tibet and North Korea are more virulent than ever.

Trading with friends

In addition to that, China’s “no-limit” partnership with Russia has moved the world’s Doomsday Clock closer to midnight.

We are now looking at unbridgeable political and security divisions. And that is leading to an increasing fragmentation of global trade transactions.

So far, however, things are not as bad as one could have expected. The world economy grew at an average annual rate of 3.2% over the last two years, closely matching the average growth of 3.4% during six years of the pre-pandemic period.

But the world trade traced out a different pattern. A 5.2% rebound in 2022 was part of the post-pandemic recovery, followed by a stagnating 1.1% growth in 2023.

Those who think of that as a statistical quirk owing to an unusually high base in 2022 are making a mistake. Indeed, a different picture emerges when one looks at trade flows between the Western bloc and the China and Russia leaning Global South. One can clearly see there the beginning of a distinct fragmentation of major trade flows.

The U.S. and E.U. trade with Russia fell last year 68% and 66%, respectively, as a result of sweeping sanctions and product embargoes.

Losses to American and E.U. trade with China in 2023 were much smaller -- 16.7% and 14%, respectively.

But the declining trend continues. In the first quarter of this year, the U.S. trade with China was down 3% from the year earlier.

Over the same period, American trade with Russia collapsed 43.3% -- to $1.1 billion. That could now come down to nothing after the U.S. ban on about $1 billion of uranium imports from Russia. Supplies of Russian uranium have been providing fuel for nuclear reactors that generate more than half of America’s emissions-free energy.

Trade divisions will depress economic growth

And there is worse: The E.U. is no longer reporting trade with Russia in monthly and quarterly numbers covering transactions with its ten largest trade partners.

Russian economy, however, continues to grow strongly. Last year, its GDP grew 3.6% and current estimates for this year are pointing to a similar number. Most of that growth is generated by domestic demand and a massive import substitution.

Russia’s trade with non-Western world – China, in particular -- is also strong. Last year, trade with China reached a record high $240 billion, and, according to Chinese statistics, trade transactions in the first four months of this year increased 8%, with Russia running a substantial trade surplus ($11.1 billion).

China’s foreign trade also continues to grow, showing a 5.7% increase during the January-April interval of this year. Trade with ASEAN (ten Southeast Asian nations), China’s largest trade partner, rose 8.5%. Over the same period, Beijing’s trade with Brazil was booming – up 27.4% -- raising trade with all Latin America by 11.7%. Trade with Africa increased 8% and 6% with India.

By contrast, China’s trade with the U.S. and the E.U. in the first four months of this year declined 5% and 2.3%, respectively.

Those numbers show that clashes between the U.S.-led West and the Russia-China Global South have set in train a significant fragmentation of world trade.

Military confrontations and strategic competition indicate that those new directions of global trade transactions are firmly in place. That is certainly true of Russia. Moscow acknowledges that it “lost the West but uncovered the rest of the world.” China seems to share that view, after a long hesitation and failed attempts to get a “win-win cooperation” with its Western trade partners.

China, in fact, is now urging a closer cooperation with Russia, a new upgrade of bilateral ties with Moscow, a tighter union of the Eurasian space and a greater policy coordination among the nine full members of the Shanghai Cooperation Organization (SCO).