{ "id": "S01", "slug": "trade-bloc-rupture", "title": "Critical trade divides into rival blocs", "version": "0.5.0", "status": "active", "orientation": "downside", "family": "A", "short_title": "Trade bloc rupture", "thematics": [ "economic-security-supply-chains", "resilience-crisis-preparedness" ], "likelihood_type": "systemic", "likelihood_note": null, "scores": { "likelihood_2y": { "band": 3, "rationale": "Every instrument in the scenario was used in 2025: duties above 100 per cent between the United States and China in April and extraterritorial rare earth licensing in October. Each escalation was followed by a truce within weeks, and the widest controls were suspended for a year. A rupture that holds for six months and removes 40 per cent of several inputs at once requires those truces to fail together. That is possible but not the central case." }, "likelihood_10y": { "band": 4, "rationale": "The conditions persist across the decade: processing of rare earths, chip tools and medicine ingredients stays concentrated, export-control regimes are now standing law on both sides and industrial policy is competitive. Ten years spans several political cycles and repeated tests over Taiwan. Both sides have so far retreated when costs became visible, which keeps the rating below band 5." }, "impact_systemic": { "level": 4, "rationale": "IMF staff estimates published in 2023 put the long-run output cost of trade fragmentation between 0.2 and 7 per cent of global GDP, depending on its depth. A 10 per cent fall in trade volume is close to the 2009 fall of about 12 per cent but lasts longer, and input shortages stop production that tariffs alone would only make dearer. That places the event at 2.5 to 5 per cent of global output over five years." }, "impact_national": { "level": 4, "rationale": "The typical highly exposed nation is a trade-dependent manufacturer that buys inputs from one bloc and sells to the other. The 2021 chip shortage and the 2025 magnet and Nexperia stoppages showed that one missing component halts vehicle lines within weeks. Here several inputs are lost for two years, with secondary restrictions and pressure to align. Economic damage and international position reach Severe; essential services continue, so the level is not Catastrophic." }, "confidence": { "level": "medium", "reason": "The instruments and their effects are well documented from 2018 to 2025. The scale assumed, 40 per cent of several inputs lost at once for two years, has no complete precedent, and the panel members differed on likelihood." }, "priority": 12, "tier": "II", "source": "model-panel-v0.5" }, "scorecard": { "onset": "months", "duration": "3 years", "warning": "months", "scope": "global", "origin": "adversarial (great power)", "external_support": "partial", "policy_response": "current plans executed", "recovery_horizon": "years" }, "summary": "The largest trading powers impose reciprocal tariffs, export controls and investment restrictions covering industrial inputs, advanced chips and digital services. Within six months, suppliers accounting for 40 per cent of global supply of several critical inputs, among them rare earth magnets, chip-making tools and pharmaceutical ingredients, become inaccessible to the opposing bloc. Prices of the affected inputs double and global trade volumes fall 10 per cent over two years. Neutral countries face secondary restrictions and incompatible standards. Substitution takes at least two years. The test is continuity of essential production and the ability to preserve policy autonomy. In its sharpest form, a single dominant supplier halts exports outright.", "narrative": { "dateline": "November 2031", "text": "The measures arrived in sequence between May and October 2029. The first was a tariff round that took average duties on trade between the two largest economies above 60 per cent. The second was a licensing regime for rare earth magnets, gallium and germanium that in practice approved no shipments to the opposing bloc. The third widened chip and chip-tool controls to cover mature process equipment and cloud computing services, and was matched by restrictions on inward and outward investment. By November 2029, suppliers accounting for about 40 per cent of world supply of permanent magnets, several chip-making tools, a class of power semiconductors and a group of antibiotic ingredients could no longer sell across the divide.\n\nManufacturers held between four and ten weeks of stock. Vehicle and electrical equipment plants in Europe, Japan, Korea and Mexico began short-time working in the eighth week. Spot prices for the affected inputs had doubled by the end of the year and contract prices followed at renewal. Health ministries in eleven countries placed three antibiotics under allocation.\n\nCountries outside both blocs were also affected. Firms in South East Asia, India, the Gulf and Latin America that re-exported controlled goods were listed by one side or the other, and two banks lost correspondent accounts. Governments were asked to adopt origin audits and end-user certificates under two rule books that could not both be satisfied. Telecommunications equipment and vehicle software certified under one set of standards were refused approval under the other. Customs clearance times for the affected categories doubled.\n\nTrade diverted where it could. Mines and separation plants outside the dominant supplier raised output and magnet recycling expanded, but the first new processing capacity did not reach volume until the autumn of 2031. Governments released strategic stocks to defence and medical users first. Most had no legal basis for allocating industrial inputs among private firms and wrote one during the shortage.\n\nBy the middle of 2031, world goods trade volume was 10 per cent below its 2028 level. Inflation ran about one and a half percentage points above target in the bloc economies and about three points above target in economies that imported from both. Employment in export sectors fell in the most exposed manufacturing regions. Exemptions were negotiated product by product and each carried a condition on alignment.\n\nGINC's reading at the two-year mark was that outcomes depended less on which side a country stood with than on what it had prepared. Countries that had mapped their dependence by product, held stocks sized to requalification times and kept working customs and licensing administrations lost output for months. Countries that learned of their exposure only when production lines stopped lost output for years, and several gave up policy positions in order to obtain supply." }, "anchors": [ { "shock_id": "us-liberation-day-tariff-package-2025", "date": "2 April 2025", "event": "US 'Liberation Day' tariff package", "what_happened": "A 10 per cent baseline tariff on most imports with higher rates by country. Duties between the United States and China reached 145 and 125 per cent within two weeks, before a truce agreed in Geneva on 12 May cut them for 90 days. The US effective tariff rate rose to its highest level since the 1930s.", "calibrates": "The speed at which reciprocal tariffs can reach prohibitive levels and the pattern of escalation followed by truce that keeps the two-year likelihood at band 3." }, { "shock_id": "china-rare-earth-controls-2025", "date": "4 April and 9 October 2025", "event": "China rare earth export controls", "what_happened": "From 4 April China required licences for exports of seven medium and heavy rare earths and the magnets made from them. Magnet shipments fell sharply in the following two months, and carmakers and suppliers in Europe, the United States and Japan reduced or stopped some lines. On 9 October the regime was extended to products made abroad with Chinese material or technology; the extension was suspended for a year after the 30 October leaders' meeting.", "calibrates": "Export licensing as the instrument that makes supply inaccessible, the weeks of stock that manufacturers hold and the reach of controls into third countries." }, { "shock_id": "china-rare-earth-embargo-on-japan-2010", "date": "September 2010", "event": "China rare earth embargo on Japan", "what_happened": "After a collision near the Senkaku Islands, rare earth shipments from China to Japan stopped for about two months. Prices of several rare earth oxides rose severalfold over the following year. Japan then invested in overseas mines, stockpiles, recycling and substitution, and reduced its dependence on Chinese supply from about 90 per cent to about 60 per cent over the following decade.", "calibrates": "Substitution time. A well-resourced importer needed years, not months, to reduce a concentrated dependence, and did not remove it." }, { "shock_id": "nexperia-export-halt-2025", "date": "October 2025", "event": "Nexperia export halt", "what_happened": "The Netherlands took control of decisions at Nexperia, a Chinese-owned maker of basic automotive chips, under its Goods Availability Act. China then barred exports of Nexperia products from its plants in China, where a large share of the company's output is assembled and tested. Carmakers in Europe, Japan and North America warned of stoppages within weeks and some cut production. Exports resumed in part in November and the Dutch order was suspended.", "calibrates": "The single-supplier halt, the sharpest form of the rupture: a low-value component with one dominant source can stop high-value production within weeks." }, { "shock_id": "us-advanced-chip-export-controls-2022", "date": "7 October 2022", "event": "US advanced chip export controls", "what_happened": "The United States restricted exports to China of advanced computing chips and of the equipment used to make advanced semiconductors, and barred US persons from supporting advanced fabrication there. Japan and the Netherlands adopted aligned controls on chip-making equipment in 2023, and the US rules were widened in 2023 and 2024. China introduced export licensing for gallium and germanium in August 2023.", "calibrates": "The technology side of the rupture: controls that begin with one product class widen by stages, draw in allied suppliers and meet retaliation in materials." }, { "shock_id": "global-financial-crisis-2008", "date": "2008–2009", "event": "Global financial crisis trade collapse", "what_happened": "World merchandise trade volume fell by about 12 per cent in 2009, the largest fall since the Second World War, and recovered most of the loss in 2010 as demand and trade finance returned.", "calibrates": "The scale of the trade fall. The scenario assumes a fall of similar size, 10 per cent, but spread over two years and without a rapid recovery, because the cause is policy and not demand." } ], "parameters": { "common": { "severity": { "major": "major", "severe": "severe", "extreme": "extreme" }, "duration": { "major": "1 year", "severe": "3 years", "extreme": "5 years" }, "onset": { "major": "months", "severe": "months", "extreme": "weeks" }, "warning": { "major": "months", "severe": "months", "extreme": "days" }, "scope": { "major": "regional", "severe": "global", "extreme": "global" }, "origin": { "major": "adversarial (great power)", "severe": "adversarial (great power)", "extreme": "adversarial (great power)" }, "external_support": { "major": "partial", "severe": "partial", "extreme": "none" }, "concurrency": { "major": "standalone", "severe": "standalone", "extreme": "plus one named scenario (S02)" }, "policy_response": { "major": "current plans executed", "severe": "current plans executed", "extreme": "current plans executed" }, "recovery_horizon": { "major": "years", "severe": "years", "extreme": "structural" } }, "specific": [ { "name": "Share of global supply of each affected input made inaccessible to the opposing bloc", "default": "40 per cent", "range": "20 to 70", "unit": "per cent of global supply", "note": "Applies to several inputs at once, among them rare earth magnets, chip-making tools, basic semiconductors and pharmaceutical ingredients. Reached within six months." }, { "name": "Price rise of affected inputs", "default": "100 per cent", "range": "50 to 300", "unit": "per cent above the pre-event price", "note": "Spot prices first; contract prices follow at renewal." }, { "name": "Fall in global trade volume", "default": "10 per cent over two years", "range": "5 to 20", "unit": "per cent", "note": "Goods and services, measured against the pre-event level." }, { "name": "Minimum time to substitute lost supply", "default": "2 years", "range": "1 to 5", "unit": "years", "note": "Time for new mines, processing plants and qualified suppliers to reach volume. Longer for chip-making tools." }, { "name": "Secondary restrictions on neutral countries", "default": "partial", "range": "none to full", "unit": null, "note": "Partial means measures against named firms and banks that supply or clear for the opposing bloc. Full, at Extreme, means measures against whole jurisdictions." }, { "name": "Single-supplier halt", "default": "no", "range": "no or yes", "unit": null, "note": "Yes sets one dominant supplier of one input to a complete export halt to all buyers, with onset in days. This is the sharpest form of the event." }, { "name": "Financial services and payment systems included", "default": "no", "range": "no or yes", "unit": null, "note": "Yes at Extreme." } ] }, "transmission": [ "The largest trading powers impose reciprocal tariffs, export licensing and investment restrictions in sequence over six months.", "Suppliers of about 40 per cent of several critical inputs can no longer sell to the opposing bloc; manufacturers run down stocks within weeks.", "Prices of the affected inputs double; plants that cannot requalify alternative suppliers reduce or stop production.", "Secondary restrictions reach firms and banks in neutral countries that supply or clear payments for the opposing bloc.", "Technical standards and certification regimes diverge, so products approved in one bloc are refused in the other.", "Global trade volume falls 10 per cent over two years; export earnings, investment and employment fall in trade-dependent economies.", "Higher import prices raise inflation while output falls, which limits the monetary and fiscal response.", "Supply and exemptions are offered in return for alignment, narrowing the policy autonomy of states that depend on both blocs." ], "loading": [ { "dimension": "Hard", "domain": "critical-technology", "load": "High", "channel": "loss of access to controlled chips, chip-making tools, magnets and materials; incompatible standards" }, { "dimension": "Hard", "domain": "defence-security", "load": "Medium", "channel": "defence production short of magnets and components; friction within alliances over alignment" }, { "dimension": "Hard", "domain": "strategic-infrastructure", "load": "Medium", "channel": "ports and customs handle origin audits; grid, telecommunications and transport equipment delayed" }, { "dimension": "Soft", "domain": "government-effectiveness", "load": "High", "channel": "licensing, customs, sanctions compliance, allocation of scarce inputs and industrial policy under time pressure" }, { "dimension": "Soft", "domain": "influence-cohesion", "load": "High", "channel": "pressure to align; exemptions traded for policy concessions; diplomatic capacity stretched" }, { "dimension": "Soft", "domain": "human-capital", "load": "Medium", "channel": "export-sector job losses, shortages of medicine ingredients and limits on researcher mobility" }, { "dimension": "Economic", "domain": "industry-trade-supply", "load": "High", "channel": "input shortages stop production; export volumes fall; diversion and requalification costs" }, { "dimension": "Economic", "domain": "macro-financial", "load": "High", "channel": "inflation with falling output; currency pressure; investment restrictions and loss of correspondent banking" }, { "dimension": "Economic", "domain": "energy-resources", "load": "Medium", "channel": "critical mineral export restrictions; delays to energy equipment; commodity price volatility" } ], "stakeholders": { "government": { "exposure": "Dependence on inputs, markets and standards from both blocs; legal powers to allocate scarce inputs; capacity of customs and licensing administrations.", "actions": [ "Map import dependence by product and supplier country for critical inputs", "Hold stocks sized to the time needed to requalify alternative suppliers", "Legislate in advance for the allocation of scarce inputs to essential users" ], "watch": [ "Export licence approval rates for controlled inputs", "Listings of domestic firms and banks under either bloc's restrictions", "Divergence between the blocs in product certification requirements" ], "relevance": 4 }, "technology": { "exposure": "Controlled chips, tools, materials and cloud services; products certified under one bloc's standards.", "actions": [ "Qualify a second supplier in a different jurisdiction for each controlled input", "Design product lines that can be certified under either set of standards", "Hold component stocks above the lead time for requalification" ], "watch": [ "Scope of export controls on chips, tools and computing services", "Lead times and spot prices for magnets and basic semiconductors", "Data localisation and cloud access rules" ], "relevance": 4 }, "investors": { "exposure": "Earnings of manufacturers with supply chains that cross the blocs; currencies and sovereign spreads of trade-dependent economies; assets subject to forced divestment.", "actions": [ "Test portfolios against a 10 per cent fall in trade volume and a doubling of critical input prices", "Identify holdings that rely on a single jurisdiction for a critical input", "Review exposure to forced divestment under investment screening" ], "watch": [ "Tariff and export-control announcements", "Inventory cover reported by vehicle and electronics manufacturers", "Currencies and sovereign spreads of trade-dependent middle powers" ], "relevance": 5 }, "public": { "exposure": "Employment in export manufacturing; prices of vehicles, electronics and appliances; availability of some medicines.", "actions": [ "Local government identifies employers that depend on inputs from the opposing bloc", "Health services plan substitutes for medicines with concentrated ingredient supply", "Media and civil society report shortages and allocation decisions accurately" ], "watch": [ "Short-time working and redundancies in export sectors", "Consumer prices for durable goods", "Medicine shortage notices" ], "relevance": 4 } }, "regions": [ { "region": "north-america", "exposure": "High", "rationale": "A principal in the rupture. Depends on the opposing bloc for processed rare earths, magnets and medicine ingredients." }, { "region": "europe", "exposure": "High", "rationale": "Export-dependent manufacturing buys inputs from one bloc and sells to both. Little domestic processing of critical materials." }, { "region": "china", "exposure": "High", "rationale": "A principal in the rupture. Loses access to advanced chips, chip-making tools and its largest export markets." }, { "region": "indo-pacific", "exposure": "High", "rationale": "Assembles for both blocs. Plants in Japan, Korea, Taiwan and ASEAN depend on inputs and tools from each side." }, { "region": "south-asia", "exposure": "Medium", "rationale": "Gains diverted orders, but its pharmaceutical and electronics industries depend on imported ingredients and components." }, { "region": "gulf-middle-east", "exposure": "Medium", "rationale": "Energy sales continue to both blocs. Technology purchases, re-export hubs and investment funds face secondary restrictions." }, { "region": "africa", "exposure": "Medium", "rationale": "Mineral exporters gain bargaining power. Importers face higher prices, tied finance and pressure over standards." }, { "region": "latin-america", "exposure": "Medium", "rationale": "Commodity exporters sell to both blocs. Mexico's manufacturing is bound to one, and lithium and copper attract rival offers." }, { "region": "russia-eurasia", "exposure": "High", "rationale": "Already under sanctions and reliant on one bloc for technology and markets. Central Asian transit states face secondary restrictions." } ], "indicators": [ { "name": "Average tariff rates on trade between the United States and China", "source": "Peterson Institute for International Economics tariff tracker; Yale Budget Lab", "threshold": "Average rates above 60 per cent in both directions", "cadence": "monthly" }, { "name": "New export-control rules and entity listings", "source": "US Bureau of Industry and Security; China Ministry of Commerce", "threshold": "Controls extended to mature process equipment, basic semiconductors or cloud services", "cadence": "weekly" }, { "name": "Harmful trade and investment interventions in force", "source": "Global Trade Alert", "threshold": null, "cadence": "monthly" }, { "name": "Chinese exports of rare earth magnets, gallium and germanium", "source": "China General Administration of Customs", "threshold": "Monthly shipments below half the level of a year earlier", "cadence": "monthly" }, { "name": "Global Supply Chain Pressure Index", "source": "Federal Reserve Bank of New York", "threshold": "More than two standard deviations above its average", "cadence": "monthly" }, { "name": "Goods Trade Barometer", "source": "WTO", "threshold": "Below 100 for two consecutive readings", "cadence": "quarterly" }, { "name": "Investment screening measures and blocked transactions", "source": "UNCTAD Investment Policy Monitor", "threshold": null, "cadence": "quarterly" } ], "compounds": { "triggers": [ { "id": "S02", "note": "Lost earnings in technology and manufacturing reprice assets; investment restrictions and currency pressure strain funding." }, { "id": "S03", "note": "Less trade between the blocs lowers the economic cost of military confrontation near contested sea routes." }, { "id": "S04", "note": "Rivalry extends to deniable pressure on the infrastructure of states that resist alignment." }, { "id": "S06", "note": "Export controls and bloc restrictions on fertiliser and farm inputs reduce harvests and make food export restrictions more likely." }, { "id": "S09", "note": "Technology rivalry accelerates state quantum programmes and reduces disclosure of progress." }, { "id": "S12", "note": "economies outside the rival blocs open to each other in response" }, { "id": "S13", "note": "The cost of divided trade creates the incentive to negotiate" } ], "triggered_by": [ { "id": "S03", "note": "A regional war involving a major power brings sanctions and export controls between the blocs." }, { "id": "S04", "note": "An infrastructure attack attributed to a rival state brings economic retaliation." }, { "id": "S09", "note": "A demonstrated attack on cryptography brings bans on the adversary's digital services and equipment." }, { "id": "S02", "note": "Governments respond to the recession with tariffs, capital restrictions and preference for domestic suppliers." }, { "id": "S10", "note": "Export restrictions on medical goods harden into lasting trade barriers." }, { "id": "S12", "note": "excluded powers may answer a compact they read as a bloc with restrictions of their own" }, { "id": "S15", "note": "competition for minerals, cells and grid equipment" } ], "amplified_by": [ { "id": "S06", "note": "Food and fertiliser export restrictions add to controls on industrial inputs." }, { "id": "S10", "note": "Export restrictions on medical goods deepen shortages of pharmaceutical ingredients." } ], "triggered_by_other": [], "amplifying_trends": [ "Export controls & economic coercion", "Critical input supplier concentration", "Trade & investment fragmentation", "Economic security policy", "Technical standards competition", "Rare earth processing concentration", "Lithography & chip-tool chokepoints", "Pharmaceutical input concentration" ] }, "open_questions": [ "Whether one record can hold both the division into blocs, with onset in months, and the single-supplier halt, with onset in days, or whether the halt needs its own preset.", "How to score nations that gain orders from diversion. The record treats them as exposed, but some would rise on several capability groups.", "Whether the 40 per cent threshold should be set on global supply, as here, or on each nation's own import share, which differs widely by input.", "Whether financial services and payment systems belong in Standard Severe. They are excluded here and included only at Extreme." ], "commentary": null, "overview": { "source": "model-panel-v0.5", "lenses": { "political": "Governments outside the blocs are pressed to **adopt one rule book**. Exemptions are granted product by product, each with a condition on alignment.", "economic": "Prices of the affected inputs double and world trade volume falls **10 per cent** over two years. Inflation is highest in economies that import from both blocs.", "social": "**Export-sector jobs** are lost in manufacturing regions and households lose purchasing power. Some antibiotics are placed under allocation.", "technological": "Chips, chip-making tools, magnets and cloud services need licences that are not issued. **Incompatible standards** leave products approved in one bloc refused in the other.", "legal": "Customs administers origin audits and end-user certificates under two regimes. Most states have **no legal basis for allocating** scarce industrial inputs.", "environmental": "Shortages of magnets and power semiconductors **delay clean-energy equipment**. New mines and processing plants are approved under shortened environmental review." }, "regions": { "north-america": "A principal in the rupture. It controls chip technology but depends on the opposing bloc for **processed rare earths**, magnets and medicine ingredients.", "europe": "Export manufacturing buys inputs from one bloc and sells to both. With **little domestic processing**, vehicle and equipment plants stop within weeks.", "china": "A principal in the rupture. It loses **advanced chips and tools** and its largest export markets, and answers with licensing of materials.", "indo-pacific": "The region **assembles for both blocs**. Plants in Japan, Korea, Taiwan and ASEAN need inputs from one side and tools from the other.", "south-asia": "India and its neighbours gain diverted orders, but pharmaceutical and electronics output depends on **imported ingredients** and components.", "gulf-middle-east": "Energy sales continue to both blocs. Re-export hubs, technology purchases and investment funds face **secondary restrictions**.", "africa": "Mineral exporters gain bargaining power. Importers pay more, and finance and equipment arrive with **conditions on standards**.", "latin-america": "Commodity exporters sell to both blocs. Mexico's manufacturing is bound to one, and lithium and copper attract **rival offers**.", "russia-eurasia": "Russia is already under sanctions and **reliant on one bloc**. Central Asian transit states face secondary restrictions on re-exports." }, "evolution": { "lead_indicators": "Tariffs between the United States and China pass **60 per cent in both directions**. Export controls reach mature chip equipment and Chinese magnet shipments fall by more than half.", "triggers": "The largest trading powers impose **reciprocal tariffs, export licensing and investment restrictions** in sequence over six months. The truces that ended earlier escalations fail together.", "immediate": "Suppliers of 40 per cent of several critical inputs cannot sell across the divide. Manufacturers hold four to ten weeks of stock and **short-time working** begins in the eighth week.", "post_immediate": "Prices of the affected inputs double and some antibiotics are placed under allocation. **Secondary restrictions** reach firms and banks in neutral countries, and exemptions carry conditions on alignment.", "stabilisation": "After two years world goods trade is **10 per cent below** its earlier level. The first new processing capacity reaches volume only then, and inflation stays above target.", "long_term": "Trade stays divided under **two rule books** and incompatible standards. Countries that had not mapped their dependence lose output for years, and several give up policy positions to obtain supply." } }, "history": [ { "edition": 2027, "rank": 1, "L2y": 3, "L10y": 4, "impact_systemic": 4, "impact_national": 4, "confidence": "medium" } ], "changelog": [ { "version": "0.5.0", "date": "2026-10-09", "change": "Rebuilt in the second pass from Geoeconomic confrontation: narrowed to critical inputs, with the single-supplier cut-off folded in; onset moved from weeks to months, the trade fall set at 10 per cent and both likelihood bands lowered by one." } ], "citation": "GINC (2027). Scenario S01 Critical trade divides into rival blocs, Scenario Library v0.5. scenarios.ginc.org/scenarios/trade-bloc-rupture" }