Regionalism Without Trust: Connector Economies in a Broken Trade-Security Order

Introduction

The rules and institutions that built the current multilateral trade architecture are nearing an end. The globalization model that emerged after World War II was sustained by an implicit security pact: a promise of global market expansion under a shared institutional framework in return for peace. Now, the erosion of the postwar pact has led to a fragmented order, where strategic distrust drives economic decisions. In this context, the assumption that strengthening regionalism to address globalization’s decline has stood out in the public debate. However, multiple examples across the globe show that renewed commercial barriers based on geopolitical interests in addition to a lack of trust and institutional coherence cause regional strategies to remain insufficient, fragile, and potentially counterproductive.

The End of the Postwar Pact

Globalization as we know it was far more ambitious than a mere economic project. Along with the multilateral institutions that were born after WWII, trade became a foundational pillar of the new world order: a security umbrella provided by the United States and its allies enabled the proliferation of trade agreements, production networks, and the elimination of commercial barriers–which, in turn, reinforced security conditions. The assumption that peace would support trade and trade would reinforce peace became a geopolitical imperative for the United States. In this context, institutions such as the General Agreement on Tariffs and Trade (GATT), and later the World Trade Organization (WTO), thrived under the logic that economic interdependence would reduce the risk of large-scale conflict.

That underlying security pact no longer holds, with large-scale armed conflicts erupting around the world, a rise of nationalism in politics and neo-protectionism in the economy. The international organizations that were created post-World War II to ensure a scenario like that would not happen again have lost almost all their capacity for dispute settlement. More significantly, the principle of separating trade from geopolitical rivalry has unraveled. Tariffs, export controls, and industrial policy are now wielded not just as economic instruments, but as tools of strategic competition. The era of strategic trust is over; in its place, governments are recalibrating trade decisions based on their own political agendas.

The Myth of Functional Regionalism: the US-Mexico Case

In light of the fractures in global trade, regionalism has been promoted as the natural alternative. The concept of “nearshoring” or “friendshoring”—the relocation of supply chains closer to home or to trusted partners—has been championed by policymakers and business leaders alike to reduce costs, strengthen regions, and decrease dependency on geopolitical rivals. Moreover, some state that globalization is in reality a regionalization process, as commerce and supply chains between neighbors is far greater than across continents.

Due to its proximity to the United States and preferential access under USMCA, Mexico has been portrayed as a primary beneficiary of this strategic realignment. However, data shows a different scenario, even under more trade-friendly governments. While Mexico has recorded a moderate increase in foreign direct investment (FDI) in recent years, this uptick cannot be completely attributed to successful nearshoring policies. Broader trends such as automation, diversification and reinvestment have weighed in, with little to do with a bet on Mexico as a geographically close industry hub. 

Moreover, data from Mexico’s Secretariat of Economy indicates that less than a fifth of total FDI in 2024 was directed to strategic manufacturing sectors typically associated with nearshoring—such as automotive transformation, electronics, and advanced manufacturing. Finally, while the United States and Mexico are mutually dependent and strong trading partners, investment in these sectors is increasingly coming from far away markets, including Asian and European firms. 

Of course, there are several domestic factors that broaden this dissonance between political rhetoric and economic reality. Mexico’s lack of solid infrastructure investment, growing organized crime presence in key industrial zones, and the recent judicial reform that undermined rule-of-law guarantees and investor confidence, continue to deter long-term investment, further complicating trade conditions.

Meanwhile, under Trump’s second term, the U.S. has imposed an aggressive reshoring agenda and tariff threats have turned regional negotiation into a coercive exercise. The US continues to lump economic cooperation, border security, and migration enforcement into a single negotiation framework, without offering Mexico a clearly defined or reciprocal role. This standstill will probably turn even more dire with the 2026 USMCA review process, with Donald Trump essentially transforming a trade renegotiation into a national security bargaining chip. Combined, these issues undermine the core logic of nearshoring, which was supposed to generate certainty and strengthen regional resilience.

Despite geographic proximity, the core problem relies on institutional and industrial asymmetries and long-term uncertainty. The U.S.–Mexico case illustrates that regionalization without trust, strategic reciprocity, or institutional coordination is not regional integration—it is dependence under pressure. Rather than neutralizing asymmetries, this model often intensifies them, creating new points of fragility in supply chains that were meant to be shielded from global turbulence.

Blocs Without Trust: Connector Economies’ Challenges

Without a global framework, countries are organizing through informal economic blocs not defined by geography alone, but by perceived loyalty, geopolitical imperatives, and alignment with strategic and political agendas. This new logic has highlighted the concept of “connector economies”—countries that maintain trade and investment ad hoc ties with multiple blocs, without formally aligning with either. 

These are seen as attractive for production relocation and geopolitical hedging. Their strategic ambiguity grants them relevance but also makes them vulnerable to pressure from competing powers seeking to secure alignment. While they may benefit from diversified flows of foreign investment, their leverage is mostly transactional and volatile. They have greater agency in the short term and during times of crises, but little power to shape the emerging trade-security order.

In this context, many Latin American connector economies– like Mexico, Brazil, and Chile– are testing survival strategies in a post-multilateral world while being caught up between two battling powers: the US and China. While some experts signal these turbulent times can bring unique opportunities for the region, Latin American countries are navigating this shift not as a unified bloc, but as a set of loosely connected economies—some too large to ignore but too misaligned to include— trying to preserve autonomy while adapting to a more fragmented and transactional landscape. 

The region’s unfulfilled goals of integration cannot be entirely blamed on the fracture of the global trade system. While governments have argued in favor of these trends in official discourse and multilateral forums, without targeted reforms—from infrastructure investment to energy reliability and customs modernization—Latin American economies will remain vulnerable to the external shocks. 

On the diversification front, Latin American countries have struggled to build the kind of strategic resilience that’s becoming essential in a fragmented global economy. Compared to other connector economies in the Asian market, like Vietnam, which have diversified both their trade partners and export markets, most Latin American economies continue to be heavily dependent on a single geopolitical relationship. Vietnam, for example, doesn’t just attract FDI from multiple sources; it also sells to a wide range of export destinations, giving it a buffer if tensions flare with any one partner. 

This difference reflects more than geography—it reveals a gap in strategy. Countries like Vietnam have proactively built institutional capacity, trade diversification, and supply chain integration. Most of Latin America, by contrast, has yet to adopt the kind of forward-looking policies needed to thrive in a world where what matters is no longer just market access, but geopolitical alignment and adaptive connectedness.

The Need for a New Pact

On the other hand, the world’s current armed conflicts—Russia’s full-scale invasion of Ukraine, Israel’s military assault on Gaza, and the escalating geopolitical confrontation over Taiwan—have further exposed the absence of a coherent global security and trade framework. But paradoxically, they also open space for rethinking one. A new pact, grounded in strategic realism rather than on outdated postwar rules, could reestablish basic rules for economic cooperation in times of rivalry and disruptions. 

The global trade system’s collapse has exposed the fragility of regionalism when it is not supported by mutual trust, shared strategy, and clear institutional commitments. In a way, regionalism has failed to guarantee its promise of stability and development. While it offers a pathway toward stability, it cannot succeed without a coherent framework to replace the postwar pact. What is needed is not just new trade agreements, but a new understanding of regional responsibility—one that aligns economic coordination with realistic security cooperation and political reciprocity. Until then, regionalism will remain fragile, and the global trade system will continue to fragment, not reorganize.