The Tariffs of the USA and Their Impact on Global Trade

Jesús Arturo Córdoba[1], OBELA

Since the 1990s and until 2025, the USA was the cornerstone of international free trade, framed by the establishment of the WTO (1995). From the 2000s, a rise in the twin deficits (fiscal and trade, see Graph 1) was observed, partly explained by the 2008 crisis, the growth of China, and the loss of competitiveness against it. The opening up of trade decentralised the US industry, due to the creation of global value chains, which relocated industries previously established in the USA to China, to become part of international manufacturing. In 2025, Washington generalised the trade war in an attempt to resolve its deficits, disregarding the role of the WTO and multilateralism in general, as well as all its previously signed trade agreements. This article will analyse how tariffs are a response to the US twin deficit and how the impact of their announcements diminishes over the course of 2025, resulting in a loss of credibility for the Trump administration and a potential decline in global trade for the country.

China's trade opening policy began in 1978. Since then, the country has initiated a slow process of integration into international manufacturing chains and has become a major recipient of foreign investment. In 1989, the USA signed the first agreement with China to produce in the special export processing zones (SEZs), and in 1992 it reached an agreement with China to finance the export of what US companies produced in these SEZs. In 2001, the Red Dragon joined the WTO and adopted its trade rules.

On 20 January 2025, Donald Trump assumed the US presidency for a second time. His speech focused on repositioning the USA at the top of the world order and adjusting its deficit position. The northern country considers that several nations, especially China, have taken advantage of them. They see themselves as victims of unfair competition and technological theft. Dr Peter Navarro is the Director of the Office of Trade and Manufacturing Policy at the White House. He concluded that China abuses the USA and is antagonistic to its interests. China is accused of dumping, espionage, and the FBI considers it a threat to national security. It is also argued that Chinese companies steal technology and intellectual property, as in the case of Huawei. In a previous report from 2017, the White House stated, “These competitions (with Russia and China) require the United States to rethink the policies of the last two decades, policies based on the assumption that engagement with rivals and their inclusion in international institutions and global trade would turn them into benign actors and reliable partners. For the most part, this premise turned out to be false.” (The White House, National Security Strategy of the United States of America, 2017)

The solution proposed by Trump in his first term was to promote reshoring or repatriation of capital. The tariffs imposed since 2018 and those announced from 2 April 2025 could be a pressure measure on US and foreign companies to produce domestically and avoid tariffs. However, as they are imposed by country rather than by sector or product as is traditionally the case, they are more tools of international policy than of industrial policy. The economic idea is that this would balance the trade deficit with countries like China, Mexico, or Vietnam, and the revenues generated would finance the treasury. This is based on the notion that the USA is still the centre of global trade. The political idea is that it will exert pressure and yield positive results for US global power. It assumes that the governments, companies, and consumers of each country will react to tariff announcements and be willing to accept US conditions. For example, he announced tariffs on Brazil at centennial rates to secure the release of Jair Bolsonaro, his political ally. President Lula informed him that there is no interference from the Executive Power in the Judiciary in Brazil, and shortly thereafter, Bolsonaro was sentenced to 27 years in prison for attempted coup and assassination of Lula. In the process, the USA withdrew the initial announcement of the tariffs.

Measuring the trade impact of tariff announcements is complicated due to the nature of trade volume data (which is not available in real time). One solution has been to use the variation in shares of the companies most affected by tariffs: cargo and freight transport companies. Since the data is published daily, it allows for estimating the immediate effect on investor expectations. Data from daily prices of the three leading companies in the sector across various countries or groups of countries such as the European Union and the Middle East have been collected. What is observed is that they react diversely to tariff announcements, but for the most part, there are no strong movements in response to tariff announcements. The only exception would be Liberation Day, 2 April (see Figure 2), when reciprocal tariffs were announced for over 90 countries. It is unclear what these tariffs are reciprocal to.

Theory suggests that tariff announcements should lead to a drop in share prices. To confirm the hypothesis, a simple statistical model was estimated to explain how tariff announcements, whether negative (imposition of tariffs) or positive (withdrawal or suspension), affect the variation in share prices of cargo companies. 

The observed result is that the greatest average impact was from positive announcements. For the most part, negative announcements do not have a significant effect, which contradicts what the Trump administration assumes. Trade will continue as usual whatever tariffs. There are some differences by country. Europe, Taiwan, and Vietnam, with significant trade ties to the USA, react as Trump expects. Others react contrary to expectation, such as China, the Arab World, or Brazil. In the rest of the countries studied (Mexico, United States, Canada, South Korea, and Japan), the announcements do not explain changes in the stock value of their exporting companies.

In conclusion, tariff announcements have not had the effect expected by Washington. This is partly due to the anticipation of investors in the observed companies, who made purchases in advance from December 2024. Additionally, countries like Brazil, the Arab countries, or China are in the process of diversifying their trade or have established new trade agreements, such as Mercosur with the EFTA. The trade diversions could impact diminishing the weight of the USA in global trade. Thus, the decrease in US hegemony is evident, and there is little certainty about the success of the tariff policy.