Tariff Man returns

It’s been a long few weeks since Donald Trump began his second presidential term on 20 January. Trade observers braced themselves for a flurry of trade actions. The question, as always with Trump, was what would stick. 

Sure enough, Trump quickly slapped duties on imports from Colombia, Canada, and Mexico, only to withdraw them after these countries’ governments granted minor concessions. There was also a move to annual an exemption on imports under $800 – the so-called de minimis rule – that was later cancelled. (It’s certainly an issue: Since Covid, Chinese retailers like Temu have taken advantage of de minimis to ship over 1.3 billion small packages to the U.S. tariff-free.) 

At this writing, here’s what is sticking: a 10% tariff on all shipments from China, and now a 25% tariff on all steel and aluminium imports. Other taxes may follow, but that’s the first volley. Those duties are significant. The US imported $438.9 billion of goods and commodities from China in 2024, and exported $134.6 billion to the Asia nation, for a trade deficit of $295.4 billion, according to Trade Data Monitor (TDM). Theoretically, that means the US is poised to collect $43.9 billion in duties, but tariffs of course reduce imports. Chinese exporters are already hunting alternative markets, especially in Asia. 

Fortress America 

As the world’s top consumer market, the US has leverage in controlling access to its markets, and many of its outsourcing manufacturers now seek countries to replace China and other targets for tariffs on more favourable terms. The US’s top source of imports is now Mexico, followed by China and Canada; the list goes on with Germany, Japan, South Korea, Vietnam, Taiwan, Ireland, and India. 

Ireland is an interesting case: it’s the US’s top supplier of pharmaceuticals, shipping in $42.8 billion worth in the first 10 months of 2024. It’s hard to imagine Washington slapping tariffs on a product as politically sensitive as pharmaceuticals. In other words, there’ll still be pie to go around. 

Thus far, however, the focus has been on industrial goods. In 2024, the US imported $31.4 billion in iron and steel, and the three top suppliers were Canada, Brazil, and Mexico. The US imported $27.4 billion in aluminium in 2024. The top three aluminium partners in 2024 were Canada, China, and Mexico. In practice, this means the US is targeting automotive supply chains that now span both American continents. 

The likely repercussions will be on Made in America cars, as prices are forced up. The US imported $216.8 billion in motor vehicles in 2024, and the top five suppliers were Mexico, Japan, South Korea, Canada, and Germany.  

Higher costs for American cars

The higher costs the US is imposing on its automotive supply chains will help competitors, notably Germany. Although Germany’s export economy has hit some headwinds, with exports slightly down in 2024, it’s still the globe’s dominant auto exporter. In the first three quarters of 2024, German auto exports increased 18.8% to $132.7 billion. 

Meanwhile, Japan’s car exports rose 10.2% to $77.8 billion, while China’s shipments nudged up 4.8% to $67.6 billion. In the electric car sector, two countries by far dominate global trade: Germany shipped out$29.1 billion in the first nine months of 2024, down 4.7% year-on-year,  while China exported $25.4 billion, up 1.4%. That’s followed by South Korea, Mexico, Japan, and the US.

Source: Trade Data Monitor

The resilience of global trade

To be sure, the scale of global trade is such that, even if government adopts protectionist measures en masse, it’s unlikely to collapse. Total exports in 2024 are expected to be around $25 trillion. The logistics sector alone is worth over $10 trillion. Global trade isn’t going anywhere. The World Trade Organization (WTO) reports that total trade in goods should increase by 2.7% in 2025, and by a few more percentage points if the ongoing conflict in the Middle East is contained. In the first 10 months of 2024, the US, the world’s top import market, ramped up imports by 5% to $2.7 trillion.

The problem of Chinese demand

An issue that could upend geopolitics – with unintended consequences that will affect war and peace, migration, and supply chains, amongst other big issues – just as much is what appears to be a crumbling in Chinese domestic demand. In a time of geopolitical shifting and adjustments, it’s one of the key factors to watch. Luckily, many of China’s neighbours have been on a newfound path to prosperity. The dream of an open and inviting Chinese market for Western businesses might have withered, but other Asian markets are just as impressive as they are overlooked. 

They’ve also benefited from globalisation to expand their middle classes. Many of the fastest-growing import markets in the world are in Asia. Take Malaysia: in the first ten months of 2024, Malaysia increased imports by 13.2% to $248.5 billion. Or Thailand, where imports increased 6.7% to $259.6 billion. And most of their trading partners are also in Asia. That’s why the WTO expects Asian export volumes to increase by as much as 7.4% in 2024; in Europe, by contrast, exports are expected to contract by 1.4%, the WTO said. 

High-tech trade remains strong 

There is less merchandise trade than there used to be, partly because there’s more service and digital trade. But you can’t have digital or service trade unless you have silicon chips. And chips trade is now the key strategic vector. Not only is Taiwan the world’s top chip exporter, but it also China’s top supplier of electronics and electrical parts (such as chips). In the first 10 months of 2024, China imported $157.7 billion worth of electronics and parts from Taiwan, up 11.1% from the same period in 2023. The position of Taiwan as the centre of global high-tech trade complicates its relationship with Beijing. 

The rise of populist governments around the world is sure to deflate the move toward green energy products. Total imports of solar panels and related parts shrank 13.3% to $135.3 billion in the first nine months of 2024. China is the world’s number one buyer, importing $19.9 billion, followed closely by the US, Germany, the Netherlands, and India. But the upcoming election in Germany, and still new governments in the US and India, make nothing certain.