Shifting trade flows in Europe: How geopolitical dynamics are shaping new alliances

Global geopolitical cohesion is deteriorating

A key finding from the index shows a distinct and sustained decline in geopolitical alignment globally. Since 2011, the geopolitics element of the index—measured by the United Nations voting similarity between countries, sanctions, and military conflict intensity—has declined to record lows (figure 1). Although there was a brief uptick between 2014 and 2016, the downward trend in geopolitical alignment has since intensified, especially over the past four years. This period has been marked by escalating conflicts in Ukraine and the Middle East, alongside a sharp rise in global sanctions—further accelerating the fragmentation of the global economic order. Recent fragmentation between economies shows up clearly in some of the underlying inputs of the index. For example, the number of country pairs with sanctions in force has increased by 9% since 2020, reaching 2,065 in 2024. Over the same period, the alignment in UN voting has declined by 4%.

For Europe, trade and geopolitics go hand in hand

The loss of geopolitical cohesion has a profound impact on international trade, especially in open economies such as Europe. We measure this relationship by comparing, on a country-pair level, trade intensity—a measure of how much two economies trade with each other relative to their gross domestic product—with their geopolitical alignment. For Europe, analysis of the historical data shows that a 1% drop in geopolitical alignment is associated with a corresponding 1% decline in trade intensity (figure 2).

Europe’s future trade partners

Looking ahead, Europe’s future trade flows will, therefore, be shaped by market potential as well as geopolitical dynamics. We can use the trends of the recent years identified by the index as inputs for our trade model to calculate projections for the most important export growth markets for Europe in ten years (figure 3). The model outcomes reinforce the already visible first indications that Europe’s trade partnerships could be shifting away from purely economically driven countries to more selective and geopolitical alliances.

Building strategic resilience in a fragmented global economy

For companies, these new geopolitical realities should induce a change in strategic thinking. Geopolitical dynamics have become a strategic variable on par with cost, market potential, and proximity. Considerations of political alignment and risk exposure now shape decisions about market entry, sourcing, and supply chains. Understanding the direction and pace of geopolitical change is essential in this context.

As geopolitical shifts accelerate and economic distortions become more frequent, European companies can no longer afford to remain reactive. Staying competitive means more than just reacting to change. Companies should adjust operations to keep pace with shifting conditions, stay ahead of emerging risks and act quickly when opportunities arise. At the same time, companies need to build geoeconomic awareness—the ability to read how politics and economics intersect and understand how they shape investment conditions, regulatory environments, and trade flows. This is no longer a matter for government affairs teams alone. Senior leaders should know where to engage, how to voice their interests, and which platforms—whether trade associations, regional forums or policymaker roundtables—can influence the rules that affect them.

As they look to build long-term strategic resilience, they should consider their company’s position through at least three critical lenses: efficient and resilient supply chains, individual risk exposure, and the potential for opportunity amid disruption.

Efficiency only with resilience: Global supply chains built on cost efficiency alone are showing cracks. Sanctions, trade disputes, and shifting alliances have exposed how brittle “just-in-time” systems can be. Building resilient supply networks that can absorb shocks, adapt quickly, and ensure continuity is the new imperative. This means prioritizing redundancy over razor-thin margins and flexibility over the fastest route. Businesses that once optimized purely for cost are now learning to optimize for durability.

Individualized resilience: Not all sectors face the same risks. The risks facing a carmaker dependent on rare earth minerals from politically unstable regions look vastly different from the risks facing a professional services provider. That’s why companies cannot afford to rely on one-size-fits-all risk models. Instead, they need to look closer at their specific exposures—identifying pressure points in supply chains or assessing how regulatory changes might disrupt operations. These insights then inform practical steps, such as broadening the supplier base, moving production closer to home or reshaping logistics.

Opportunity in disruption: While the current geopolitical world brings disruption, it also creates space to grow. Market realignments, shifting alliances, and the emergence of new trade blocs are opening doors to previously overlooked regions. Companies willing to adapt their business models—to reshore, expand into alternative markets, or deepen relationships with trusted partners—stand to benefit. Success will not come from waiting out the volatility, but from stepping into it with a plan. Those who spot political trends early and act decisively will be well-positioned to lead in the next phase of global trade.

Competing through a strong geoeconomic voice

Competing in today’s geoeconomic environment requires more from European firms than agility—it demands strategic insight, operational foresight, and the ability to influence the broader system in which a company operates. As geopolitics becomes a driving force behind investment flows, trade flows and regulatory landscapes, businesses must move beyond risk mitigation and become more active. This means developing internal capabilities to understand geopolitical trends, engaging in policy dialogue where decisions are being shaped and aligning corporate strategy with the realities of a more fragmented world.

Companies that invest in building this geoeconomic intelligence and voice—whether through dedicated internal teams, industry coalitions or cross-border partnerships—will be better positioned to anticipate disruptions, capture new growth opportunities, and influence outcomes. Ultimately, this is not just about protecting margins. It is about shaping the operating environment and demonstrating leadership in a world where economics, politics, and power are increasingly intertwined.