Trade wars on this scale can spread. This one did not. While America and China escalated, nations which together account for 75% of world trade chose restraint. The conflict was contained.

But containment did not save the old system. Once the system’s American architect turned arsonist, the old rules-based order was torched.

The real question is: what replaces the old order?

Domino regionalism

Canadian Prime Minister Mark Carney shared his answer at Davos in January 2026: “In a world of great power rivalry, the countries in between have a choice – compete with each other for favour, or combine to create a third path…” The third path, he suggested, is to bridge existing regional trade agreements (RTAs).

It is an appealing vision with one big problem: who would lead? Carney pointed to “middle powers”. But how do you get diverse nations to lead a complex effort? It would be like herding cats at feeding time.

Is there any other way? As it turns out, yes. Regional economic integration has self-organised in the past (WTO 2011). The mechanism is called the domino theory of regionalism (Baldwin 1993, 1997).
 

When countries form an RTA, they lower barriers among themselves. Trade inside the bloc is favoured, but outside exporters face discrimination. That discrimination politically activates the disadvantaged exporters to push their governments to join. If a new country does join, a cumulative dynamic kicks in. The benefits of joining and the costs of staying out both rise as the bloc expands. More dominoes can fall, and the dynamic repeats. The same logic can be framed in Newtonian terms. Regionalism creates its own gravity. The larger the bloc, the stronger the pull. The logic results in self-organising regionalism.

This is a key insight: if regionalism rebuilds the world trading order, as I believe it will, it will do so on autopilot. No cat herding. No cat herder. The bridge building is being driven by something akin to Adam Smith’s invisible hand.

And we can already see this dynamic at work.

Nations seeking to diversify exposure to the US and China are signing RTAs at an accelerated pace. New initiatives have been launched. Stalled negotiations have been revived and concluded. The EU, for example, has signed many RTAs in 2025 and 2026 that widen and deepen its trade links. This includes large ones like EU-Mercosur and EU-India, each of which covers trade flows of more than $100 billion. But it’s not just Europe. The domino effect is visible across all the continents.

So where is this heading?

An emergent world trading order

The pre-2025 trading system was centred on the US. Think of it as a cathedral: a single structure designed and maintained by American leadership.

The architect burnt down the cathedral. What replaces it looks very different.

The cathedral’s single hub is being replaced by a multi-hub trading system shaped by domino regionalism. In my view, the EU and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) are likely to be the key hubs. Each hub has its own rules and partners, but the two are already beginning to align. In November 2025 they set up the EU-CPTPP Trade and Investment Dialogue (DFAT 2025).

This emergent order has an important property. The key hubs have worked well for years, do not involve the trade giants, and have survived World War Trade in fine form. Coherence is maintained, without a hegemon, by members who share an interest in rules-based trade.

There is a risk of fragmentation, but there is a countervailing force. Firms operating across borders have strong incentives to maintain interoperability. Supply chains do not respect geopolitical boundaries. That commercial pressure will push the emerging system toward coherence.

This process is unfolding in three distinct modes of regional integration.

Some existing trade agreements go far beyond tariffs. These ‘deep”’ arrangements include rules on services, investment, intellectual property, and regulatory alignment. They are the backbone of modern supply chains. The largest are the EU and the CPTPP.

The EU’s trade is vast. About 20% of world trade takes place within the bloc. This makes it a huge pool of rules-based trade, a haven of trade predictability. As its network of agreements expands, so does its gravitational pull. Even outside firms increasingly operate under EU-aligned standards.

Other agreements are shallower. They focus mainly on tariffs and customs procedures. The Association of South-East Asian Nations (ASEAN) is one. Its rulebook is lighter than the EU’s, but it covers critical elements of Asian supply chains. Since 2025, it has deepened and is in talks to sign new arrangements with partners such as Canada.

A third pattern is bilateral web-building. Countries such as the UK, India, and Gulf states have been actively expanding their networks of agreements.

Taken together, these three modes are reconstructing the global trading system. Deep agreements consolidate the rules that underpin complex trade. Shallow blocs widen the reach of tariff preferences and common disciplines. Bilateral agreements connect the system’s different parts.

Concluding remarks

Donald Trump’s 2025 tariffs were disruptive in the deepest sense. By raising barriers on almost everything from almost everywhere, he broke rules and trade commitments that had anchored the global system since World War II. It was as if the referee had walked off the field, leaving the players to fend for themselves.

But the players did not walk away.

Countries still valued the prosperity and predictability that rules-based trade had delivered for decades. Instead of abandoning the system, they adapted. Governments defended openness, built defences against coercion, and signed new trade agreements. In effect, they began to self-referee.

No global conference rebuilt the system. Countries acting in their own interests widened and deepened existing pools of predictable commerce. Through domino regionalism, this process has become self-reinforcing.

The old order will not return. The cathedral is not being restored.

In its place, a new system is taking shape: a solar system of interconnected, rules-based regional hubs.

I explore these dynamics and more in my eBook, World War Trade: Conflict, Containment, and the Emergent World Trading Order. It is free to download from CEPR.org here.

References

Baier, S and J Bergstrand (2004), “Economic determinants of free trade agreements”, Journal of International Economics 64(1): 29-63.

Baldwin, R (1993), “A domino theory of regionalism”, NBER Working Paper No. 4465.

Baldwin, R (1997), “The causes of regionalism”, The World Economy 20(7): 865-888.

Baldwin, R (2014), “WTO 2.0: Governance of 21st century trade”, Review of International Organizations 9: 261–283. https://doi.org/10.1007/s11558-014-9186-4

Baldwin, R (2025), The Great Trade Hack: How Trump’s trade war fails and the world moves on, CEPR Press.

Baldwin, R (2026), World War Trade: Conflict, containment, and the emergent world trading order, CEPR Press.

Chen, M X and S Joshi (2010), “Third-country effects on the formation of free trade agreements”, Journal of International Economics 82(2): 238-248.

European Commission (2025), “EU launches Trade and Investment Dialogue with Trans-Pacific bloc”.

DFAT – Australian Department of Foreign Affairs and Trade (2025), “2025 CPTPP–EU trade and investment dialogue joint ministerial statement”, 20 November.

Egger, P and M Larch (2008), “Interdependent preferential trade agreement memberships: An empirical analysis”, Journal of International Economics 76(2): 384-399.

Merz, F (2026), speech at the Munich Security Conference on 13 February 2026, Federal Government of Germany transcript.

Rodríguez-Clare, A, M Ulate and J P Vasquez (2025), “The 2025 trade war: Dynamic impacts across US states and the global economy”, VoxEU.org, 10 June.

WTO – World Trade Organization (2011), World Trade Report 2011: The WTO and preferential trade agreements.