Why the World Is Slipping into a ‘G-Negative-Two’ Trade Order

The global trading system is entering a phase not of leadership vacuum, but of active disruption. While 2025 may be remembered as the year US President Donald Trump dramatically escalated protectionism, the deeper reality is more unsettling: the world’s two largest economic powers — the United States and China — are simultaneously imposing costs on the rest of the world. Together, surging US protectionism and resurgent Chinese mercantilism are reshaping global trade in ways that are especially damaging for developing economies.

From a ‘G-Zero’ to a ‘G-Negative-Two’ World

Much of the post-Cold War global order relied on the assumption that major powers would, at a minimum, supply global public goods such as open markets and predictable trade rules. That assumption no longer holds. Instead of a leaderless “G-Zero” world, today’s reality resembles a “G-Negative-Two” system, where the United States and China — the two hegemons — are actively imposing negative spillovers on others.

Rather than stabilising the global economy, both powers are pursuing inward-looking strategies that reinforce each other’s worst tendencies.

How Chinese Mercantilism Set the Stage

China’s export-driven model has long relied on persistent trade surpluses, industrial policy and a strong manufacturing base. While this approach lifted hundreds of millions out of poverty, it also crowded out manufacturing opportunities elsewhere. Even as wages rose, China retained dominance in low- and mid-value manufacturing segments that developing countries traditionally rely on for industrialisation.

A growing body of analysis suggests that this dominance is not purely market-driven. Exchange-rate management has played a role, with estimates — including by Brad Setser of the Council on Foreign Relations — suggesting that the renminbi remains significantly undervalued. This has made Chinese exports cheaper and more competitive, particularly in price-sensitive developing markets.

Trump’s Protectionist Turn and ‘Liberation Day’ Tariffs

This backdrop helps explain the protectionist worldview of Donald Trump. His long-standing fixation on tariffs stems from the belief that foreign trade surpluses hollowed out American manufacturing. China, with its large and persistent surpluses, became the principal target — though many other countries have also been swept in.

The so-called “Liberation Day” tariffs announced in April marked a dramatic escalation. Average US tariffs on imported goods jumped from just over 2% to around 17%, making the United States one of the world’s most protectionist major economies almost overnight. Market access to the world’s largest consumer economy has not only narrowed but become highly unpredictable, as tariffs are deployed with little transparency or consistency.

National Security, Courts and Arbitrary Power

Trump’s use of national security justifications to impose sweeping tariffs has further eroded trust. The US Supreme Court has signalled reluctance to second-guess executive determinations of what constitutes a security threat, even when tariffs appear politically motivated — including actions against Brazil or punitive measures aimed at India following diplomatic disagreements.

This judicial deference leaves trading partners operating in a fog of uncertainty. Even if courts eventually rein in some measures, alternative legal pathways remain available to pursue the same protectionist agenda.

China’s Export Surge into the Developing World

Ironically, US tariffs have intensified rather than moderated Chinese mercantilism. With US market access constrained and domestic growth still dependent on exports, China has redirected its export machine toward other regions — especially South-East Asia, Africa and Latin America.

Research by Shoumitro Chatterjee and others shows that Chinese exports of low-value-added goods to developing countries have risen sharply, undercutting local producers. This is precisely the segment — textiles, apparel, furniture and basic manufactures — that historically drives early-stage industrialisation.

The Domino Effect: Protectionism Spreads

Faced with a flood of cheap imports, developing countries are responding defensively. Mexico, for instance, has imposed tariffs on goods from China and India. But in an era of complex global value chains, targeting one country without affecting others is nearly impossible.

The result is a broader drift toward protectionism. What begins as defensive action against Chinese imports quickly morphs into general trade barriers, fragmenting markets and raising costs across the board.

Why Developing Countries Stand to Lose the Most

Recent research by Dev Patel, Justin Sandefur and others highlights a troubling trend: the convergence of developing countries toward advanced-economy living standards has stalled over the past decade. This slowdown coincides with the retreat of globalisation.

Export-oriented, low-value manufacturing has historically been the ladder out of poverty. When that ladder is kicked away — by US protectionism at the top and Chinese overcapacity at the middle — the poorest countries are left with few alternatives.

The Deeper Irony of the US–China Standoff

Despite their rivalry, the United States and China now share an uncomfortable similarity. Both are hijacking the global trading system for domestic ends, shrinking the space for others to grow. Their actions are not offsetting each other; they are mutually reinforcing.

As global trade fragments, the immediate victims will be workers and small producers in the poorest regions of the world — far removed from Washington or Beijing, yet deeply affected by decisions taken in both capitals.

What This Means for the Near Future

Unless the two hegemons recalibrate, the world risks settling into a prolonged period of slower growth, higher trade barriers and weaker development outcomes. For developing countries, the challenge will be to preserve export opportunities, diversify markets and avoid being crushed between competing giants.

In a “G-Negative-Two” world, the central question is no longer who leads globalisation — but whether it can survive at all under the weight of its most powerful participants.