Circular Economy and Global Economic Retrenchment

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For nearly two decades, the concept of a circular economy (CE) has been promoted as one way to decouple economic growth from resource depletion. Through systems that minimise waste and extend the life cycle of products and materials, CE is recognised as a production model in which sustainability and prosperity are mutually supportive.

Despite increased attention on CE, today’s volatile political climate is undermining its progress. Global trade is disintegrating amidst tariff wars and protectionist economic policies (particularly by global superpowers). Interruptions to global supply chains, arising not only from geopolitical instability but also from crises such as the COVID-19 pandemic, provide a politically appealing case for resource nationalism (i.e., hoarding domestic resources). Addressing the long-running economic and social consequences of globalisation and loss of domestic manufacturing, ‘reshoring’ disrupts modern trade patterns and may refashion circularity. An uncertain, volatile, and isolationist world order is a hostile setting for sustainability ambitions.

An uncertain, volatile, and isolationist world order is a hostile setting for sustainability ambitions.

CE literature suggests that free trade expedites the flow of materials and goods in a manner that promotes reuse, repair, and recycling in regions that have a competitive advantage in these activities. In free market settings, waste management can be sourced according to processing capacities and inherent market advantages. Retrenchment, on the other hand, weakens this mechanism to scale up CE. If a global CE relies on cross-border collaboration, technology diffusion, knowledge transfer, and harmonised standards, can it thrive in an era of de-globalisation?

The worldwide collaboration once driven by globalisation is now being weakened. The World Trade Organization (WTO) forecasts a mere 0.9 percent growth in global merchandise trade for 2025, reflecting the dampening effect of protectionist policies. One example is Europe’s aluminium industry, whose advocates have urged the European Commission to impose duties of up to 30 percent on the export of scrap. Exports of aluminium scrap from the European Union (EU) reached a record 1.26 million tonnes in 2024, roughly 50 percent higher than five years earlier.

The justification for new duties is that scrap outflows reduce the feedstock available to domestic recyclers. Additionally, industry groups argue that this problem is exacerbated by United States (US) tariffs, which impose a 50 percent import duty on primary aluminium but only 15 percent on scrap. This differential is likely to result in more scrap being diverted to the US, forcing global buyers (including those in Asia, once the principal importer of scrap from the US) to turn to Europe and further crowding the EU scrap market.

The volatility of tariff policies introduces significant uncertainty for potential investors. Recycling and circular industries are likely to be substantially impacted, including sustainability technology (or ‘clean tech’), secondary metals, and renewable infrastructure; such industries may require long-term capital commitments that rely on stable regulatory and trade environments. By limiting, for example, the flow of aluminium scrap to regions with advanced recycling capacities, trade restrictions interrupt the global loop of material circularity.

In effect, the political logic of protectionism overrides the economic logic of circularity.

Fragmentation in the regulation of trade also introduces price distortions, increases reliance on virgin materials, and reverses the collective gains of global competition; these consequences undermine the resource efficiencies CE seeks to achieve. In effect, the political logic of protectionism overrides the economic logic of circularity. Moreover, capital that could have scaled CE systems is either diverted to less risky or less sustainable sectors or retained within national jurisdictions in ways that weaken both innovation pipelines and global decarbonisation efforts.

In another example, the US imposed 50 percent tariffs on many imports from India (including clean technologies like solar modules). It also recently launched probes into India concerning anti-dumping duties (AD/CVD) with a focus on exports of solar modules and panels. This policy could make those exports economically unviable in markets, such as the US, where sustainability efforts benefit from them. As clean tech sectors are increasingly being recognised for their circularity potential (for example, solar panel reuse and modular recycling), sector-specific trade barriers exemplify the erratic threats undermining CE scale-up. If the global market for solar modules is being destabilised now, downstream activities, including panel recycling and refurbishing, may later lose their viability.

When tariffs make cross-border trade unviable, they disincentivise reuse and recycling markets that depend on scale and international integration. Over time, systemic fragility intensifies, and clean technologies risk becoming as linear, wasteful, and carbon-intensive as the systems they were intended to replace. The result is higher costs, market unpredictability, and supply chain fragmentation, as the transnational ‘loops’ that enable reuse, remanufacturing, and resource recovery are severed. This chain reaction not only generates local inefficiencies but also transforms the CE into a patchwork of domestic initiatives rather than a cohesive global system.

Resource nationalism compounds these trade frictions. Export bans may be justified when the domestic supply of certain materials is threatened, but they also limit opportunities to develop a global market for recycling and reuse. Resource hoarding, particularly where recycling systems and incentives are weak, can also lead countries into a continuous cycle of virgin resource exploitation.

When tariffs make cross-border trade unviable, they disincentivise reuse and recycling markets that depend on scale and international integration.

Globalisation has historically accelerated the adoption of innovative practices and technologies, as ideas are shared and multilateral collaborations thrive. Without global conduits and standards for material flows, CE will continue to be a fragmented and localised niche activity. Global CE prospects face domestic political headwinds due to distortionary policies like tariffs, subsidies, and local-content requirements.

However, state-driven interventions such as export bans, price controls, and resource nationalisation have a measurable ripple effect across global supply chains, especially for critical minerals such as lithium, nickel, and cobalt. These shocks not only depress welfare in major industrial economies but also generate severe price volatility in the Global South’s manufacturing and agricultural sectors.

Nevertheless, well-conceived policy strategies can arrest this decline. Governments should turn away from strategic insularity and recognise how their economies and the cause of sustainability overall depend on the facilitation of global markets for recyclable materials. Targeted exemptions from tariffs and trade restrictions, along with regulatory reform that enables more innovative approaches to CE (for example, allowing a wider range of use alternatives for reused materials), can be politically defensible and pragmatic ways to promote CE in an era of global trade retrenchment and economic nationalism.

Sustainability is an inherently global vision given that climate change and environmental degradation are agnostic to political borders. However, politics is becoming stubbornly isolationist in an era when preoccupation over sovereignty is becoming the anti-globalisation pushback many had long expected. Such strategies may satisfy fleeting political mandates, but planetary health is a longer-term endeavour. Progress arrested by wilful ignorance and short-termism will exact a devastating environmental cost.

Sustainability is an inherently global vision given that climate change and environmental degradation are agnostic to political borders.

Governments should more systematically integrate concerns about waste management and resource flows into their trade strategies, not only for sustainability but also for economic opportunity or necessity. This effort begins with quantifying the potential economic gains of CE, a thorough understanding of vulnerability and potential for CE in a country’s strategically important industries, and open communication between the public and private sectors, as well as with global trading partners. In these ways, CE can realise its potential not only in sustainability but also as a platform for collaboration and even diplomacy.

Shreyash Sharma is a columnist and a researcher.

Kris Hartley is an Assistant Professor of Sustainability and Enterprise at Arizona State University, School of Sustainability.

• Economics and Finance
• India
• circular economy
• circular economy and sustainability
• circular economy for sustainability
• circular economy for sustainable development
• circular economy model

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