Global Trade Goes Rogue: The World Ditches the US!

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The author serves as chair of Rockefeller International. Their latest publication is titled ‘What Went Wrong With Capitalism’

Although Donald Trump has not yet implemented his numerous tariff threats, there is a strong possibility that he will. This creates apprehension that the aggressive trade strategies of the US president could trigger global instability, hindering growth and unsettling markets, especially if the countries targeted retaliate.

However, retaliation is not the only, nor the most probable, response towards Trump’s actions, regardless of how extensively he follows through on his threats.

For the past eight years, the US has utilized tariffs as a strategic tool. The tariffs enacted during Trump’s initial term were largely maintained or, as in the case of China, expanded by Joe Biden. Some nations chose to respond with retaliation; others provided concessions or sought resolution through international trade authorities. Yet, many simply adapted by pursuing trade relationships with nations outside of the US.

Since Trump’s first year in office in 2017, trade has remained relatively constant at just below 60 percent of global GDP, although the US has experienced a decline in its share of trade flows, compensated by growth in other regions, notably Asia, Europe, and the Middle East. The potential for a Trump 2.0 presidency suggests that the trend of trade without the US may continue.

In the last eight years, over 80 percent of countries—both developed and developing—have seen trade increase as a proportion of their national GDP. More than a dozen significant nations, including Japan, Italy, Sweden, Vietnam, Greece, and Turkey, have recorded increases exceeding 10 percentage points. Conversely, the US has seen its trade share decrease to approximately 25 percent of GDP. Although the US economy has been growing faster than many of its global counterparts, it has not benefited from trade growth.

While the US may remain a formidable financial and economic juggernaut, it is diminishing as a trading power. Its portion of global equity indices has surged to nearly 70 percent, and its share of global GDP has risen slightly above 25 percent. However, its contribution to global trade has fallen to under 15 percent, undergoing considerable decline in the past eight years.

A significant focus of concerns surrounding Trump’s tariffs is how they might adversely affect exporting nations that rely heavily on the US as their primary market. Nevertheless, during Trump’s first term—prior to the pandemic and despite his tariff initiatives—developed countries experienced steady growth, while developing nations saw a notable rise in exports of both goods, driven by technology products and commodities, as well as services like transportation and digital services.

Global trade negotiations veered off course post-2008, as the tensions stemming from that year’s financial crisis complicated the execution of vast international agreements. Nevertheless, many countries progressively pursued smaller agreements, resulting in an uptick in the number of bilateral and regional pacts, invigorated after Trump’s presidency began, during which he branded himself as “tariff man.”

The US became an outlier, observing while other nations honed their trade deal negotiating skills. Since 2017, the US has disengaged from discussions on trade partnerships with both the EU and Asia and has not established a single new trade agreement. Meanwhile, the EU has successfully concluded eight deals, and China has signed nine, including a significant 15-nation partnership in Asia.

As the conclusion of Trump’s second term neared, dealmaking activities began to rise again. The EU hurried to finalize the outline of a challenging agreement—25 years in development—with the Mercosur alliance in South America, followed by negotiations with Mexico. Consequently, Mexico is now accelerating efforts to expand its trade relationships within Latin America, partly as a safeguard against potential actions by Trump.

As a result, over the past eight years, the center of global trade has shifted away from the US and toward the Middle East, Europe, and Asia, with countries like the United Arab Emirates, Poland, and particularly China experiencing significant share gains. Among the ten fastest-growing trade routes, five have one endpoint in China, while only two connect to the US.

Trump suggests that tariffs will garner respect and restore US stature. However, there is an additional risk to consider. The new president’s populist agenda promises to liberate the US from substantial government interference through taxes and regulations, yet tariffs represent another form of intervention, subject to unintended consequences.

Thus far, the “America first” tariff policies have done less to damage their main target, China, and more to compel US allies to seek alternative trade partnerships. Consequently, the impending threat of broader tariffs may be less about igniting trade wars and more about undermining the US’s standing as a trading power and ultimately diminishing its economic influence.