Global Economy 2025: Fears Eased, Trade Stayed Open — But 2026 Risks Point to the US

Two major economic assessments of 2025 share a clear conclusion: the year turned out far more stable than expected, global trade remained largely open, and most nations resisted copying US-style protectionism. Yet, even as Asia — especially Asean and China — emerges as a bright spot, the United States could become the biggest source of global economic turbulence in 2026.

2025 Surprised on the Upside as Protectionism Failed to Spread

DBS Chief Economist Taimur Baig highlights how early-year fears over President Trump’s “Liberation Day” tariffs faded quickly. Many worried the world would follow Washington’s aggressive protectionism, but instead:

• Europe, Asean, India, North Asia, the Middle East, and China expanded or signed new free trade agreements.

• Governments doubled down on the free flow of goods, services, capital, and people.

This collective refusal to mirror US tariffs helped keep global supply chains open and investor confidence intact.

Baig notes that markets have become increasingly resilient to US policy swings. He uses the acronym “Taco” — “Trump always chickens out” — to describe how frequent reversals in US trade actions have repeatedly “stress-tested” markets since the Covid-19 era. These shocks, while disruptive, have pushed companies and investors to adopt more systematic scenario planning.

“Totus”: Trading Beyond America

Baig introduces a second key idea: “Totus”, short for “trade outside the US.”

With the US tightening rules on trade, immigration, technology, talent, travel, and tourism, businesses worldwide are adjusting by developing two playbooks:

1. One for navigating US restrictions, and

2. Another for engaging with the rest of the world’s more open markets.

This isn’t about decoupling from the US — which remains economically critical — but about refusing to adopt its protectionist mindset. Baig points out that most of the world’s population, GDP, and trade now lies outside the US, and this larger global market continues to champion relatively frictionless cross-border activity — a trend he expects to persist through the late 2020s and into the 2030s.

2026: Major Global Risks Now Centered in the US

While 2025 ended stronger than expected, Baig cautions that the biggest risks for 2026 are now US-centric. He highlights four vulnerabilities:

• A potential AI-driven asset bubble in US financial markets

• A fragile zero-sum approach to trade relations

• Political attempts to undermine the Federal Reserve’s credibility

• Growing pressure for financial repression as America grapples with heavy debt

He warns that opaque AI financing, excessive reliance on private credit, under-regulated regional banks, and unresolved crypto risks could create instability. Political pressure on the Fed to keep interest rates artificially low could further shake confidence in the US dollar and corporate credit markets, sending shockwaves across the global economy.

Asia Shines: Asean, India, and China Offer Opportunities

Despite these concerns, Baig remains upbeat about Asia — especially South-east Asia.

He describes this period as a “golden age” of foreign direct investment into Singapore, Vietnam, and Malaysia, with inflows expected to remain strong into 2026.

Additional bright spots include:

• India, which may re-engage with Asean and reconsider its decision to stay outside the RCEP trade pact.

• China, where the narrative is shifting. Instead of being seen solely as a low-cost exporter or tech imitator, Chinese firms are now emerging as global technology leaders. Baig notes growing “DeepSeek moments” — instances where foreign companies want to license and pay for Chinese innovations.