President Trump has come out swinging to reestablish the US as the dominant trading nation, threatening tariffs against China, the EU and even its North American trading partners. So far, tariffs are the preferred tool to deal with the chronic US trade deficits. Many expect a slew of non-tariff barriers to follow, affecting the flow of capital and technology between the US and its major trading partners. There is widespread fear that an ensuring global trading disorder will result in a major slow down in economic growth worldwide. These fears are compounded if the major US trading partners will carry out tit-for-tat measures against the US. Deadlines come and go with Trump, but the latest is Feb 1^st when China, Mexico and Canada are expected to be hit with new tariffs as high as 25%. 

In his inaugural speech, Trump vowed to end the US “decline”. This decline is clearly demonstrated :

• 1970 the US share of global trade in goods was 15%;
• 2017   the US was the world’s largest trading nation for goods and services;
• 2019 the US share of global goods dropped dramatically to just 9%; and, by
• 2022 the US dropped to become the second largest trading nation, well behind China.

While the US has maintained its relative share of world GDP at 25%, its share of global trade is under 15 per cent, and has declined significantly in the last eight years.

The question is: did the US decline its own doing?  Or, has the world trading patterns altered in ways that indicates the US in no longer the “indispensable” trading nation, a phrase so-often thrown about when Trumpers pound the table in advocating putting tariffs to bend other nations to its will.
 

Trump introduced tariffs as a weapon against China, starting in 2017. The Biden Administration expanded some of these tariffs aimed at China. So, for 8 years, the US has wielded tariffs as a weapon, with very little retaliation or pushback from China. By and large the world trade flows remained steady at 60% of global GDP, so US tariffs have not had any measurable impact on the world scene. Global trade in 2024 grew at 3.3% pushing the level to $33 trillion,an all time high. China has found ways to lessen its dependency on the US market and now occupies third spot, after Mexico and Canada. Nonetheless, China has a record trade surplus of US$ one trillion and continues to be the global leader. Put differently, US tariffs had no impact on global trade and no impact on Chinese trade performance. 

Ranking of US Trading Partners, Nov 2024

Source : US Census

The US Administration certainly feels that it does not need the rest of the world. The US has pulled out of all multilateral trade talks, abandoning discussions with the EU and Asia and has not shown an interest in participating in a new trade arrangement. Now that Trump is a “tariff man”, the US is clearly moving into an isolationist sphere. That has not stopped EU and Asian countries from pursuing trade negotiations amongst their members. 

Trump’s first term tariff policy demonstrated that worldwide trade went largely unaffected by the US trade barriers. More importantly, China generated the largest trade surplus on record in 2024, yet it no longer the US’ largest trading partner.  Over the past eight years since the Trump 1.0 tariffs were introduced, the centre of global trade has clearly moved away from the US and increasingly towards, Asia, Europe, and the Middle East.

To date, the “America first” tariff regime has not hurt China. Now, the doubling down on that policy is not likely to have much impact. If for no reason, China has been able to develop new trade markets to supplant some of the American markets harmed by tariffs. China has successfully looked elsewhere, especially in fast growing regions such as southeast Asia.

Trump has explicitly identified Mexico and Canada to be hit with US tariffs, perhaps as high as 25%.  Any US tariff policy with respect to Canada must contend with the heavy US reliance on Canadian oil , and the prospects of Canada retaliating with its own export tax on oil shipped south of the border. The largest manufacturing industry in North America involves the free trade in automobiles. There is no such animal as an “American made “car, since the industry is highly integrated throughout the continent with parts passing over borders numerous times on the way to final assembly. No tariff policy in this sector can be readily instituted to deal with automobiles. 

In sum, international trade flows are changing rapidly, not necessarily in favour of the US. Thus, the extension of the existing US tariff policy will only serve to undermine US relevance as a trading power. 

More By This Author: