What Does Trump 2.0 Mean for Global Trade?
As President-elect Donald John Trump returns to the White House, all eyes are on the critical decisions shaping his second-term agenda regarding cross-border trade, immigration, climate-related policies, and deregulation initiatives. In particular, his protectionist trade agenda outlined during the campaign trail for the 2024 elections will have major repercussions for the United States and the world at large. His return has sparked concerns about potential disruptions to cross-border trade flows and what his second term means for global trade and multilateral trade rules.
As the world grapples with the potential economic implications of the Trump presidency, his victory suggests a period of uncertainty and chaos on the global trade front and makes most trading partners (especially China and the European Union) wary for the foreseeable future. The trading partners of the United States will need to formulate strategic responses to the President-elect’s trade policies and transactional approach, as his second term in office is anticipated to be far more disruptive than his first.
This Time is Different
The prospective second Trump presidency is anticipated to differ significantly from the first term. The first Trump presidency prioritised addressing trade imbalances, renegotiation of NAFTA (which led to the United States-Mexico-Canada Agreement (USMCA)), and the initiation of a trade war on China with tariffs imposed on approx. US$370 billion worth of Chinese imports. However, a second Trump presidency, supported by Republican majorities in both the Senate and the House of Representatives, implies a major shift in U.S. bilateral and international trade arrangements. A second Trump presidency would likely result in the implementation of a universal tariff on all imports of goods and significantly increased tariffs on Chinese goods.
Regarding trade policy, President Trump may not require a majority in either the Senate or the House of Representatives, as Congress has delegated certain trade policy powers (including the authority to levy tariffs on imports) to the president over time. Indeed, President Trump used these powers during his first term and pledged to employ them more extensively during his prospective second term. However, a majority in the Senate and House would facilitate expeditious implementation of policy shifts with robust political support. Donald Trump’s victory in the popular vote by 5 million votes also gives him a powerful mandate to implement his trade policy agenda.
More importantly, a significant political movement advocating “Make America Great Again” has emerged over the past eight years, and an “America First” approach to foreign trade enjoys bipartisan support in Congress and among voters. In fact, President Biden implemented certain “America first” policies initially proposed by the Trump administration. Not only did Biden retain tariffs on Chinese goods imposed by the Trump administration, but he also introduced export controls to limit China’s access to critical technologies, including quantum computing and semiconductor goods. Continuity in policy actions by Washington will further empower the incoming Trump administration to vigorously implement protectionist trade policies against China and other trading partners in the second term.
Owing to the unpredictable nature of Trump’s governance style, it is challenging to forecast his protectionist trade agenda and its potential impact on global trade over the next four years. As the international community braces for Inauguration Day on 20 January 2025, below are some key issues to watch out for.
A Global Trade War in the Offing
The incoming Trump administration has hitherto not disclosed details regarding the timing, magnitude, and enforcement of tariffs and other trade protectionist measures. Consequently, it remains uncertain to what extent the president-elect will pursue campaign promises and at what pace.
Nevertheless, Republican presidential candidate Donald Trump repeatedly stated during the campaign trail that tariffs would be a significant component of his trade policy agenda. “The most beautiful word in the dictionary is ‘tariff,’ and it’s my favorite word”, said Mr. Trump during an interview at the Economic Club of Chicago on October 15, 2024. Donald Trump perceives tariffs as a multi-purpose policy instrument to stimulate domestic manufacturing, penalise nations engaging in unfair trade practices, and deter American corporations from investing abroad. In his worldview, tariffs are a highly effective negotiating instrument for securing more favourable economic outcomes.
During the campaign, Trump consistently advocated the imposition of a 10% uniform import tariff rate applicable to all trading partners of the United States (an increase from the current average of 2.7%). Furthermore, he proposed increasing the tariff on China from the current rate of 13% to 60% on all U.S. imports originating from China, and potentially implementing a 100% tariff on Chinese electric vehicles imported from Mexico. He has also threatened to impose 100% tariffs on countries that refrain from using the U.S. dollar for cross-border trade activities.
We expect Mr. Trump to implement higher tariffs on Chinese imports through executive orders in the first half of 2025. He may initiate this process incrementally by increasing tariffs to 25% for Chinese imports and 5% for imports from the rest of the world, excluding Canada and Mexico. He may exclude all critical goods from the rise in tariffs, which constitute 10% of total US imports.
Owing to the USMCA, Mexico and Canada may potentially be exempted from the increase in tariffs; however, their exports could encounter elevated non-tariff barriers and stricter border controls. Hence, “friendshoring” destinations such as Mexico might not be spared this time. In any case, the USMCA is up for review in July 2026, and the Trump administration can renegotiate or opt not to renew the trade agreement.
Should Mr. Trump fulfil his election promises, it would promptly elicit retaliatory measures from most of its trading partners, thereby precipitating a prolonged global trade war with far-reaching adverse repercussions on global trade and economic growth. The ramifications would be particularly acute in industries that rely on imported raw materials and commodities and are embedded within global supply chains.
Disregarding the prospect of a full-fledged global trade war, even a contained one would incur substantial economic costs to the U.S. economy and the rest of the world. Allianz Research has estimated that a contained trade war (US tariffs on China hiked to 25% and 5% for the rest of the world, excluding Mexico and Canada) could reduce global trade growth by 0.6 percentage points in 2026, with $135 billion worth of global exports at risk, while a full-blown trade war (tariffs on China hiked to 60% and 10% for the rest of the world, including Mexico and Canada) would result in a reduction of up to 2.4 percentage points, with $510 billion worth of global exports at risk. The potential cost to global GDP growth could escalate to a reduction of -0.8 percentage points over the course of a year under a full-fledged trade war scenario, meaning that almost one-third of global growth would be lost, according to Allianz Research.
Domestically, broad-based additional tariffs on U.S. imports will have deleterious effects on American businesses and consumers, resulting in a resurgence of domestic inflation and a deceleration of economic growth. Confronted with elevated input costs, domestic producers will transmit additional expenses to consumers by increasing the prices of their products, consequently leading consumers to expend more on finished goods. Higher inflation would, in turn, compel the Federal Reserve to slow or stop its interest rate cuts. Should inflation become unmanageable, the Fed may be compelled to reinitiate interest rate increases. In addition to a reduction in real income for American households, there could be substantial losses in U.S. exports due to trade retaliation, contributing to a negative impact on the U.S. GDP in the medium term.
A More Intense Trade Conflict with China and the EU
Precedents from Trump’s first term and current campaign pledges suggest that both China and Europe will face significant tariffs on their exports. According to Allianz Research, close to a combined $67 billion of exports are at risk in 2025-26.
The prospects for US-China trade relations remain bleak. This time, we can expect increased tensions between the United States and China, extending beyond trade issues to encompass investments, technology, space, energy, digitalisation, and artificial intelligence. Regarding geopolitical focal points (Russia, Taiwan, Indo-Pacific), confrontations between the two nations are also likely to intensify.
As research has shown that the tariffs imposed by President Trump in his first term had little impact on China, he is most likely to double down on tariffs on Chinese imports during his second term. A more intense US-China trade war is expected to significantly impact China’s exports, investments, and technological advancements. The United States would likely impose substantial tariffs on Chinese imports, particularly on products that are non-critical to U.S. supply chains. The intense trade conflict between the United States and China might also heighten the risk of disrupting regional and global supply networks, potentially negatively affecting third-party nations. For instance, a sharp decline in Chinese exports to the U.S. would also negatively impact ASEAN economies, as Chinese products use raw materials and intermediate goods from this region.
Last month, Mr. Trump criticized the U.S. trade relationship with the European Union and called the bloc a “mini China”. In the case of the EU, the sectors most likely to face tariff increases are the automotive, pharmaceutical, and metals sectors.
In retaliation against American protectionism, China and the EU could potentially target U.S. exports of agri-food, pharmaceuticals, automotive, and machinery. They may not target U.S. oil and gas exports due to the ongoing global energy crisis.
Given that retaliatory measures alone may not be sufficient to mitigate the impact of tariffs, China and the European Union may implement additional policy measures, such as interest rate reductions, in an effort to weaken their currencies against the U.S. dollar.
Chinese authorities may also provide additional policy support by reducing business taxes and enhancing the financial support for local governments. However, this time the Chinese economy is in much more trouble than in 2016 because of the bursting of real estate bubbles, weak domestic consumption, and overall lower economic growth. Apart from boosting domestic demand, China also requires a substantial increase in exports, which presents a significant challenge given the sluggish recovery in global demand and growing protectionism in much of the developed world.
What About the Rest of the World and WTO?
As Donald Trump gears up for a second term, his trade policies are poised to impact economies beyond China and the EU. Blanket tariffs would lower the demand for exports from the rest of the world. In particular, eight Asian nations with a trade surplus vis-à-vis the United States ought to be wary, considering president-elect Trump’s fixation on trade deficits. These countries will come under heightened scrutiny under Trump 2.0.
During his first term, President Trump consistently referred to India as a “tariff king” and recently criticised the nation for imposing higher duties on American products. During his election campaign, he vowed to implement a reciprocal tax against India if re-elected. New Delhi should take this threat seriously, given that the first Trump administration revoked India’s Generalized System of Preferences (GSP) status in 2019. This decision adversely affected India’s export-oriented sectors, including pharmaceuticals, textiles, agricultural goods, and automotive components.
What about the World Trade Organization? During his first term, President Trump initiated numerous policy actions aimed at undermining the WTO’s effectiveness and indicated a shift away from the rule-based global system that the U.S. had been instrumental in establishing. Under his presidency, the WTO faced heightened vulnerability due to his combined approach of unilateral policy actions, strategic disengagement, and resource starvation.
Trump 1.0 effectively paralysed the WTO’s Appellate Body by blocking judge appointments—a situation that persists to this day, owing to a similar approach of the Biden administration. Indeed, the WTO’s dispute resolution mechanism for mediating global trade conflicts was severely hampered by both administrations.
However, a second Trump term would more aggressively pursue the “America First” agenda and implement policies that undermine international trade rules, dealing a fatal blow to the already weakened WTO. With its dispute settlement system in disarray and fewer checks on unilateral actions by members, this raises questions about the WTO’s relevance in enforcing rules for global trade.
Under Trump 2.0, the fate of the Indo-Pacific Economic Framework (IPEF) and its associated agreements, spearheaded by the Biden administration, remain highly uncertain and precarious. Not long ago, Mr. Trump likened the IPEF to a “Trans-Pacific Partnership (TPP) Two”, hinting at the possibility of withdrawing the U.S. from this agreement should he be re-elected. It is important to remember that President Trump withdrew the US from the Trans-Pacific Partnership in 2017. While the ramifications of an IPEF withdrawal would be considerably less significant than those resulting from the TPP, such an action would nonetheless further diminish the United States’ commitment to maintaining its economic engagement in the region.
Considering that the United States has played a pivotal role in shaping the international trade system over the last seven decades, it is improbable that global trade and the institutions that support it will remain unaffected by the overt isolationist approach expected during Trump 2.0.
Uncertainty Ahead
Donald Trump’s decisive re-election as president has placed numerous aspects of global trade in a precarious position. Other nations should remain vigilant because the second Trump administration will be far more emboldened and unrestrained than the first one.
Anticipating heightened uncertainty and chaos on the trade front, other nations should endeavour to strengthen multilateral trade rules to mitigate the disruptions and downside risks caused by unilateral actions from the U.S. while simultaneously exploring alternative markets to export their goods and services.
Kavaljit Singh works with Madhyam, New Delhi.
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