Despite increased tariffs imposed by the United States, global trade grew in 2025 thanks mainly to China and other emerging economies. Much of the increase in Chinese exports reflects the redirection of trade from the United States to Asia, Africa and Europe, as authorities adapt to rising tariffs through export diversification. This has supported Chinese growth, even as domestic demand remains sluggish.
Emerging and China, global trade continues at full speed
This was underlined by Magdalena Polan, head of EM research, fixed income at PGIM, explaining that the doubling of export-led growth by China leads to an increase in competition for other manufacturing exporters. Germany’s manufacturing industry, which produces many goods that compete globally with China’s, offers a particularly telling example. As in developed economies, inflation in emerging markets has generally stabilized near target. This has allowed most emerging market central banks to continue their easing cycles, although notable exceptions remain (notably Colombia, where generous wage increases could trigger a hike cycle).
Fiscal weakness and populist tendencies, partly linked to the upcoming electoral calendar in emerging markets, highlight some vulnerabilities in the outlook. Elections will be held in Brazil and Colombia, and both present polarized political prospects, accompanied by major fiscal risks. While there are rating risks for both countries, we do not expect downgrades that could lead to major disruptions. Peru and Hungary will also go to the polls this year. The 2025 elections saw a shift to the right (e.g. in Ecuador, Chile, Argentina, Romania).
The PGIM view
When viewed through the lens of geopolitical dynamics (including the broader strategic competition between the United States and China and the focus on regional “spheres of influence”), election outcomes could translate into investment opportunities. This is especially true of U.S.-Latin American relations, where U.S. policy priorities on immigration, trade, and security (e.g., drug trafficking) have allowed some Central and South American countries to benefit.
Similarly, 2026 will see a change in trade and tariff dynamics. While effective tariff rates will remain higher than in the past, other factors will limit their impact on growth. Emerging market supply chains and trade diversion tactics will evolve and impact technology exports, such as those to Asia.
The scenarios
Countries rich in raw materials are the beneficiaries of geopolitical changes and the development of AI. Fragmentation is a risk, but many emerging markets are less vulnerable as they typically have multiple trading partners, diversification in what they trade, especially larger ones, and have varying levels of exposure to the United States.
While we have increased the probability of our baseline scenario for China, “we continue to see the balance of risks tilted to the upside (a 5 percentage point increase for the 15% productivity increase scenario) given productivity gains, policy easing, and potential overheating of the US economy. The main downside risk in China is US-China trade tensions and the still slow recovery in consumer demand.”
