Major powers, including the United States, China, and Russia, are expanding their military capabilities at a pace not seen since the end of the Cold War, prompting warnings from international institutions that this new arms race could not only heighten geopolitical risk but also significantly hinder global trade.
Recent data from the Stockholm International Peace Research Institute (SIPRI) reveal that nuclear arsenals around the world, which include those of the U.S., Russia, China, and other nuclear states, are expanding after decades of gradual reduction. SIPRI’s 2025 Yearbook reveals rising military expenditures and modernization programs, a trend that coincides with deteriorating arms control agreements.
“The era of reductions in the number of nuclear weapons in the world… is coming to an end,” said SIPRI Director Dan Smith in the institute’s latest assessment, highlighting the fragility of existing arms control mechanisms.
China’s Military Activities Around Taiwan
In the Indo-Pacific, tensions are intensifying as China conducts large-scale military drills around Taiwan. These exercises, often involving warships, fighter jets, and missile units, simulate encirclements and blockades of key Taiwanese ports and airspace, raising concerns among global shipping and logistics firms about potential disruptions to one of the world’s busiest maritime corridors.
Beijing frames these maneuvers as warnings against “external interference” following increased U.S. arms cooperation with Taipei, including an $11 billion weapons package approved by Washington last December. While China has not officially disclosed details of hidden missile deployments on or around Taiwan, U.S. and independent analysts suggest the rapid expansion of Beijing’s missile silos and long-range strike capabilities is aimed at deterring external support for Taiwan and ensuring strategic leverage over the island.
Economic Consequences: Trade Under Pressure
The intersection of military build-ups and economic activity is drawing attention from international economic bodies. The United Nations Conference on Trade and Development (UNCTAD) has warned that global policy uncertainty, including geopolitical risk, is dragging on world trade and growth, with global growth forecasts downgraded due to uncertainty and rising trade tensions.
Similarly, research from the World Trade Organization (WTO) shows that persistent geopolitical conflicts have the potential to drive up trade costs and reduce economic welfare. A WTO working paper highlights that sustained geopolitical fragmentation, such as a decoupling of global trade networks, could slash global economic output by up to 12% in some regions, as supply chains and technology flows become restricted.
“Any escalation of U.S.–China tensions and economic decoupling would have implications not just for the two largest economies, but for the rest of the world,” WTO Director-General Ngozi Okonjo-Iweala warned in an October 2025 interview, noting that protracted tensions could slow global trade growth for years.
Trade Routes and Supply Chains at Risk
Disruptions to key sea lanes in the Taiwan Strait, through which roughly one-third of global shipping passes, could trigger supply chain bottlenecks and increased insurance costs, especially for high-value goods like semiconductors and electronics. A blockade or militarised standoff in the region could force rerouting via longer and costlier alternatives, dampening global trade volumes.
Investors are also reacting: risk premiums on global shipping futures and commodity markets have seen increased volatility as geopolitical risk premiums rise, signalling that businesses are pricing in potential disruptions to trade flows.
The resurgence of great-power military competition extends beyond national defence. Global military spending has climbed to record levels, raising concern among economic policymakers and business leaders about spill-over effects on trade, investment and growth. Persistent geopolitical uncertainty threatens the multilateral trading system that has supported decades of globalization, risking a rollback of economic integration built since the end of the Cold War.
