US President-elect Donald Trump has made it clear that his administration will impose high tariffs on imports to the United States, or at least use the threat of tariffs to force US trading partners to comply with his economic agenda. On his first day in office, Trump has pledged to enact a 25 per cent tariff on all imports from Canada and Mexico, while raising tariffs on goods from China by 10 per cent. Additionally, he has previously suggested 60-100 per cent tariffs on imports from China and 10-20 per cent on imports from other countries, including long-standing US allies.
While the intention behind these tariffs is to strengthen domestic industries, some experts warn that the potential consequences could backfire. One likely response to these tariffs is retaliation, with other countries imposing their own tariffs on US goods. In response, countries might seek to negotiate exemptions, perhaps by increasing investments in the US or importing more American agricultural products. But there’s another potential outcome, particularly relevant for China — trade diversion. With US tariffs rising, companies may shift production to countries subject to lower tariffs, undermining US industries instead of protecting them.
China, for example, has already been laying the groundwork for such a shift. In recent years, China has been pursuing a “charm offensive” across the globe, strengthening economic and trade ties with a range of countries, including US adversaries like Russia and close US allies such as Japan. Between 2021 and 2023, Russia’s exports to China rose by 63 per cent, and China’s exports to Russia grew by 65 per cent, according to the International Monetary Fund’s (IMF) Direction of Trade Statistics (DOTS). This economic cooperation comes amid growing tensions between Russia and the West, which have pushed Moscow closer to Beijing.
Furthermore, China’s efforts to strengthen trade relations within the BRICS group — which includes Brazil, Russia, India, China, and South Africa — have gained significant traction. Last year, BRICS extended invitations to six additional countries, including Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the UAE, further expanding China’s influence. Despite some setbacks, such as Argentina rejecting the invitation and Saudi Arabia postponing its plan to join, the BRICS+ grouping is growing in influence, with more nations potentially seeking membership in the future.
Even countries that have traditionally been neutral in the US-China rivalry are finding it increasingly difficult to maintain their position. For example, India’s trade with Russia has surged in recent years, with Russian exports to India increasing by 606 per cent from 2021-2023. This surge is largely due to Russia’s need to redirect its energy exports away from Europe and to more friendly markets in Asia. Although India is more of an exception than the rule, the trend is clear: emerging and developing economies are looking to deepen ties with China and Russia while maintaining trade relations with the West.
If Trump imposes across-the-board tariffs, this could shift the global trade balance. While the Global South (emerging and developing countries excluding China and Russia) has historically increased exports to the G7 countries more rapidly than to Russia and China, this may change in the future. China, for example, is already trying to woo US allies. It has even reintroduced short-term visa exemptions for Japanese citizens, seeking to foster better relations in a bid to reduce the impact of US tariffs.
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In Europe, China is investing heavily, with Chinese electric vehicle maker BYD setting up a new factory in Hungary to potentially reduce its future tariff burden. While the European Union (EU) and Japan might be able to negotiate exemptions to Trump’s tariffs, such negotiations could lead to further divisions between the US and its traditional allies, weakening the coherence of international trade policies.
Another significant concern is the long-term effect of tariffs on the US economy. While Trump aims to reduce the US trade deficit, high tariffs could fuel inflation domestically, prompting the US Federal Reserve to raise interest rates. This would likely cause the US dollar to appreciate, making US exports more expensive and imports cheaper, ultimately reversing the intended effect of the tariffs. If countries retaliate with their own tariffs, US exports could fall, while global trade may also shrink as a result of the trade wars.
Despite Trump’s focus on China, it is possible that his aggressive tariff stance could harm US economic dynamism and global influence. A failure to take a nuanced approach could result in other countries seeking alternative trade partners, thereby undermining the long-term strength of the US economy. In the end, while Trump may succeed in temporarily pressuring countries like China, the broader consequences of his tariff policies could have far-reaching implications for US trade and diplomatic relations worldwide.
