Old Trade Order is Fraying: KPMG
In its Biannual Supply Chain Report: Five Trends Shaping the Economic Landscape, KPMG examines how current events are affecting the supply chain.
The consulting firm points to events such as the conflict in the Middle East and the ongoing war in Ukraine, which are boosting energy costs, as well as the trade war with Canada, which is testing some of the world’s most highly integrated supply chains.
“The old trading order is fraying before a new one has emerged,” said Meagan Schoenberger, senior economist, KPMG.
The following is an excerpt of a few of the trends.
Geopolitical chokepoints and the Rising Cost of Shipping
Oil prices should ease once the conflict in the Middle East abates. However, a geopolitical risk premium could keep energy costs above prewar levels. Shippers will continue to bear the burden of new flareups, refining constraints and low oil inventories.
The boost to defense outlays and the glut of debt flooding global capital markets are another hurdle, as they have triggered a global bond market sell-off. Bond yields rose well before central banks started to lift interest rates in response to the inflation triggered by the conflict. That has added to the costs of holding inventories, which were already elevated in response to a front-running of another round of tariffs.
The conflict broke out at a time when US supply chains were already stressed. The trucking industry was consolidating in the wake of the surge in shipments post-pandemic, while the ranks of those working in transportation and warehousing are suffering a setback due to stricter immigration enforcement and tougher English language rules. Extreme weather adds costs and disrupts production; the predicted “super El Niño” increases risks for 2027.
USMCA in Limbo
The failure to extend the USMCA at the July 2026 joint review shifted the agreement into annual reviews. Technically, the agreement remains in force through 2036 unless terminated earlier, and the three countries can agree to a 16-year extension at any annual review. Trade talks with Mexico are ongoing, while talks with Canada have broken down. The result has put into question agreements that date back to the 1960s and is clouding plans for investment and supply chains.
Official US actions impose tariffs of up to 50% on a defined set of Canadian goods, including certain motor vehicles, regardless of whether they qualify under USMCA but does not apply to all Canadian imports. The vehicle and high-tech industries are especially exposed. Production and investment plans in both the US and Canada could be disrupted because parts often cross the border multiple times before a finished vehicle rolls off the assembly line.
The tensions have already spilled over into relations with other countries. The US has threatened the European Union with additional tariffs, or restrictions on trade in some areas, if it decides the EU’s proposed closer association with Canada is a hostile act. (The unprecedented “associate member” concept has not yet been defined or approved.)
The most likely scenario is that firms face continued and greater uncertainty, rather than a full decoupling from our neighbors. That could delay investments, increase costs associated with compliance/contingency planning and reduce integration in key industries.
Trade Reorganizes into Regional Blocs
Global trade did not collapse in the wake of the April 2025 tariff announcements. Retaliation was selective and generally more limited than many initially feared. Many affected economies diversified markets, rerouted trade and strengthened domestic or regional supply chains to improve resilience and preserve market access.
Bilateral and regional agreements are becoming more prominent. One example is the Information Technology Agreement, whose participants eliminate tariffs on covered technology products even though not all World Trade Organization (WTO) members take part. The WTO lists 388 regional trade agreements currently in force.
US manufacturers could be at a disadvantage if they are excluded from new preferential trade agreements. Key risks to these regional partnerships include the possibility that larger economies, including the US or China, may oppose arrangements that exclude them, and that political rivalry could increasingly displace the economic cooperation motivation behind regional integration.