Latest / International Business with Fexingo: Global Trade, Cross-Border Deals, and Multinational Operations / How Global Trade Is Moving to Regional Blocs in 2026
Transcript
- Lucas: You know, for years the conventional wisdom was that global trade would keep getting more global — longer supply chains, more cross-border complexity, lower tariffs everywhere. But if you look at the data in 2026, that trend has clearly reversed. Luna: Right. We're seeing trade actually consolidating into three big regional blocs — North America, Europe, and Asia. And the numbers back that up. Lucas: Exactly. Take the trade-weighted US dollar index — it's at 120.1 as of early June. That's up from 119.36 just a week ago. A strong dollar usually hurts global trade, but what's interesting is that regional trade within blocs is actually accelerating. Luna: So the strong dollar is pushing companies to shorten supply chains, not abandon trade altogether. Lucas: Precisely. And the poster child for this is us mexico trade under the USMCA. Mexico's peso has strengthened about 12 percent against the dollar this year, which normally would make Mexican exports more expensive. Yet nearshoring continues to surge. Luna: Because it's not just about currency anymore. It's about certainty and speed. Lucas: Right. Companies are willing to pay a little more for a supply chain that doesn't get disrupted by a shipping crisis or a tariff war. I was looking at the weekly ETF flows — the Mexico ETF, EWW, ticker e w w, is up 4.8 percent this week alone. That's a vote of confidence. Luna: And it's not just US companies. Chinese manufacturers are building factories in Mexico to bypass tariffs on Chinese goods. That's a fascinating twist. Lucas: Yes. Foxconn, for example, is expanding its assembly plants in northern Mexico. They're shipping finished electronics into the US under USMCA rules of origin. So effectively, Chinese companies are using Mexico as a back door. Luna: But that also means they have to meet USMCA content requirements — a certain percentage of the value has to come from North America. That's forcing them to source more parts regionally. Lucas: Exactly. And that's actually strengthening the regional supply chain. The automotive sector is a great example. Under USMCA, 75 percent of a car's value must be made in North America to qualify for zero tariffs. That's up from 62.5 percent under NAFTA. Luna: So automakers are moving more production to Mexico and the US. I saw that Tesla is building a new battery plant in Nuevo León, right across the border from Texas. Lucas: Right. And that's part of a broader trend. Regional trade within North America has grown about 25 percent in the automotive sector alone since USMCA took effect. Compare that to trans-Pacific trade, which has been flat or declining. Luna: We should also talk about Europe. The EU has been deepening its own regional trade, partly in response to Brexit and partly to reduce dependence on China. Lucas: Yes. The EU's trade with neighbouring countries — what they call the 'neighbourhood' — has grown faster than trade with Asia. And the EU has been signing new trade deals with Mercosur and other blocs. Luna: But here's the key question: Does this mean globalization is dead? Or just taking a different form? Lucas: I think it's a reconfiguration. Global trade isn't shrinking overall — it's just being reorganised along regional lines. The World Trade Organisation still projects global trade growth of about 3 percent this year, but almost all of that growth is intra-regional. Luna: So the days of a single global supply chain for a product are fading. Instead, you have multiple regional supply chains. Lucas: Exactly. And for investors, that means you need to think about which regions are winning. The emerging market ETFs in our data show some interesting divergence. The India ETF, INDA, is up 2.4 percent this week. Brazil, EWZ, up 4.2 percent. But look at the broader emerging market ETF, EEM — up 3.2 percent. Luna: Those are strong numbers, especially given the strong dollar. Normally emerging markets get crushed when the dollar rallies. Lucas: Right. And that tells me that regional trade blocs are providing a buffer. Countries that are part of a strong regional bloc — like Mexico in North America, or Vietnam in Asia's supply chain — are seeing more investment. Luna: We should also mention the geopolitical angle. The Iran peace deal announced today could reshape trade routes in the Middle East. If sanctions are lifted and the Strait of Hormuz reopens, that changes the calculus for oil and gas trade. Lucas: Absolutely. The headlines this morning say world leaders are welcoming the deal, and European sanctions relief is expected. That could lower oil prices and reduce shipping costs, which would benefit global trade generally. But it also might accelerate regional blocs as countries in the Middle East start trading more with Europe and Asia. Luna: So the thesis is that trade is becoming more regional, but within each region, the volume and complexity are increasing. Lucas: Exactly. And I think that's a durable trend. Look at the yen at 160.3 per dollar — that's weak, but Japan's trade within Asia is still robust because the regional supply chain is so integrated. China's yuan is at 6.77 per dollar, relatively stable, and China's export surge — 35 percent year-over-year — is partly driven by intermediate goods going to other Asian countries for final assembly. Luna: So the picture is complex. It's not a simple story of deglobalization. Lucas: No, it's not. It's about the reshaping of global trade into three major poles, each with its own logic. And for businesses and investors, understanding which pole you're in — and how the rules are changing — is critical. Luna: And these are the kinds of conversations we dig into every day on this podcast, without any ads or sponsors. Lucas: Yeah, we keep it ad-free because we think listeners appreciate the focused, independent analysis. If you find value in that and want to support the show, you can find us at buy me a coffee dot com slash fexingo. Luna: That link is also in the show notes. It's a simple way to help us keep doing what we do. Lucas: So back to trade blocs — one thing I'm watching closely is how the us china tariff situation evolves. The Trump administration has threatened 100 percent tariffs on French wine over the digital services tax, but the bigger picture is that tariffs between the US and China remain high. Luna: That's a key driver of the regionalisation trend. If you can't trade freely with China, you find partners closer to home. Lucas: Right. And that's why Vietnam, Mexico, and even India are seeing such strong FDI inflows. The data shows that foreign direct investment into these countries is up significantly this year. Luna: Let's talk about the implications for multinationals. If you're a CEO, how do you restructure your supply chain? Lucas: I think the smart ones are building parallel supply chains — one for North America, one for Europe, one for Asia. It's more expensive, but it reduces risk. And with the strong dollar, it's actually cheaper to build in the US or Mexico than it was a few years ago. Luna: That's a good point. The strong dollar makes US labour and inputs relatively cheaper for foreign companies. Lucas: Exactly. So the regionalisation trend is self-reinforcing. The dollar strengthens, which encourages more production in the dollar zone, which strengthens regional supply chains, which in turn reinforces the bloc. Luna: It's a structural shift, not just a cyclical one. Lucas: I agree. And for the rest of the year, I'll be watching how the Iran deal affects oil routes and whether Europe can deepen its own regional trade without the UK. But for now, the message is clear: trade blocs are the new reality.