How Global Trade Dynamics Are Shifting Amid US Tariff Policies

Impact of US Tariffs on Global Trade

United Nations: According to a leading UN economist, global trade may decline by three percent, with exports shifting from traditional markets like the US and China towards countries such as India, Canada, and Brazil due to new tariffs imposed by the US.

Recently, US President Donald Trump introduced an extensive tariff strategy. Following this, the White House declared a 90-day suspension on 'reciprocal tariffs' for most nations, excluding China, which retaliated by imposing a staggering 125 percent tariff on US goods.

"Global trade could see a contraction of 3 percent, leading to notable long-term changes in trade dynamics and economic integration," stated Pamela Coke-Hamilton, Executive Director of the International Trade Centre, during a session in Geneva.

She highlighted that exports from Mexico, significantly affected by these tariffs, are now being redirected from the US, China, Europe, and other Latin American nations, with only slight increases in Canada and Brazil, and to a lesser extent, India.

Similarly, exports from Vietnam are moving away from the US, Mexico, and China, while experiencing substantial growth towards markets in the Middle East and North Africa (MENA), the EU, and Korea.

Coke-Hamilton pointed out that the textile industry, crucial for economic activity and employment in developing nations, is particularly vulnerable. For instance, Bangladesh, the second-largest apparel exporter globally, could face a reciprocal tariff of 37 percent, potentially resulting in a loss of $3.3 billion in annual exports to the US by 2029.

She emphasized that for developing nations to effectively manage global shocks—whether from pandemics, climate crises, or abrupt policy changes—they must focus on three key areas: diversification, value addition, and regional integration.

"This presents opportunities for developing countries not only to navigate uncertain times but also to strategically prepare for the future," she remarked.

Coke-Hamilton noted that preliminary estimates, developed in collaboration with the French economics research institute CEPII before the announcement of the 90-day pause and additional tariff increases on China, suggest that by 2040, the impact of these 'reciprocal' tariffs and initial countermeasures could lead to a 0.7 percent reduction in global GDP.

Countries such as Mexico, China, and Thailand, along with several nations in Southern Africa, are among those most adversely affected, including the United States itself.

Regarding China's decision to impose 125 percent tariffs on US imports, Wendy Cutler, Vice President and Managing Director of the Asia Society Policy Institute (ASPI) in Washington DC, stated that China's announcement of further tariff increases against US imports indicates that the expectation for China to concede in this trade conflict is unrealistic.

"China is prepared for a prolonged struggle. Beijing has acknowledged that it has reached the limits of retaliatory tariffs, possibly indicating that it possesses various other strategies that could be employed if the US escalates further," she explained.

Cutler added that the current steep tariffs—145 percent on Chinese imports to the US and 125 percent on US imports to China—effectively halt trade between the two largest economies.

"The duration of these tariffs remains uncertain, but eventually, both Washington and Beijing will need to recognize the necessity of re-engagement to manage this deteriorating situation," she stated.

Daniel Russel, ASPI's Vice President of International Security and Diplomacy, commented that while Chinese President Xi Jinping is not retreating, he is also not escalating tensions unnecessarily.

Russel noted that Xi is betting that Trump's tariff strategy will falter under the pressure of the US market's response. He also mentioned that Beijing is moving away from symmetrical retaliatory tariffs, indicating a shift in strategy towards long-term advantages.

"By declaring it will 'ignore' future US tariff increases, Beijing is not attempting to win the trade war outright; rather, it aims to endure and outmaneuver Trump. China's objectives include stabilizing its economy, enhancing diplomatic influence, and maintaining pressure on US allies to hedge their bets. Xi's tour of Southeast Asia is part of a broader strategy to strengthen China's economic relationships in the region while the US faces challenges and alienates its partners," Russel concluded.