With a second Trump administration starting up, 2025 may bring escalating tariffs, retaliatory trade measures, and a rearranging of the international trade order.
The anticipated start of US President-elect Donald Trump’s second term positions 2025 as a defining year for global trade policy. If the United States unleashes a significant expansion of tariffs, it could provoke swift retaliatory measures from targeted countries and severely strain international trade relationships.
Uncertainty looms over how these tariffs will unfold. Their form, scope, and timing depend on various factors, including executive actions, congressional debates, and procedural requirements, such as adherence to trade law provisions or international obligations. Analysts predict the administration may deploy tariffs as strategic tools in negotiations on immigration, foreign currency policies, and Europe’s purchase of American liquefied natural gas.
For Europe, also dealing with political turmoil in France and Germany, uncertainty over a possible trade war leaves a big question hanging over the direction of policy. Joachim Nagel, President of Germany’s Central Bank, said, “At present, the biggest source of uncertainty for the Forecast is a possible global increase in protectionism.”
US corporations, many of which rely on complex global supply chains, are preparing for potential disruptions. Resistance to sweeping tariffs is expected from the business community and trade-dependent states.
Neil Shearing, group chief economist at Capital Economics, which has been closely monitoring global trade shifts associated with Trump’s trade policies, told Global Finance in a phone conversation from London: “The key point, over and above everything else, is that we don’t really know exactly what tariffs will be put in place, when, and at what level.”
As the international community braces for the fallout, 2025 could either signal a reordering of trade relationships or deepen global economic uncertainty.
‘Tariff Man’ Returns To Center Stage
Trade tariffs have been a cornerstone of US policy since its earliest days, long before the 2018 tweet in which then-President Trump dubbed himself a “Tariff Man” and made them a central theme of his first administration. The first US president, George Washington, signed a law mandating a 5% tariff on most imports.
Trump stands out as the first modern US president to make tariffs a central pillar of trade policy, significantly shaping economic direction since the globalization of the 1990s. “The first wave of tariffs was a big shift in US trade policy,” says Michael Pearce, deputy chief US economist at Oxford Economics. “Until that point, tariff revenues had been a small and declining share of the economy. Then, tariff revenues more than doubled during Trump’s first term.”
Tariffs had reached record lows before the onset of the subsequent trade war. According to the World Bank, US tariffs were among the lowest in the world, with a simple-average Most-Favored Nation (MFN) rate of around 3.4%.
By 2018, however, the US role in global trade had shifted dramatically—from leading the charge in reducing tariffs to spearheading tariff increases.
“The trade war initiated by the Trump administration marked a sharp departure from [the previous] trend,” says Aakarsh Rattan Ramchandani, analyst and chief strategy officer at Bigdata.com, an artificial intelligence platform developed by RavenPack. Our “analysis highlights how the 2018 tariff increases reversed years of progress in trade liberalization, creating ripples across global markets.”
The tariffs introduced by Trump in 2018 prompted retaliatory measures from major trading partners, including China, the EU, Canada, and Mexico. Despite the change in leadership in 2021, the administration of President Joe Biden retained most of these Trump-era tariffs and, in some cases, expanded them. For example, tariffs on electric vehicles were increased from 25% to 100% in 2024, underscoring bipartisan support for the growing wave of US protectionism.
Tariffs are often viewed as the simplest tool to protect “Made in the USA” products, encourage reshoring production, and safeguard domestic jobs. Yet in a globalized world with intricate trade networks, the reality is far more complex. The diversity of products, companies, and supply chains means that unintended consequences are almost inevitable.
The 2018 tariffs hit a well-oiled global market, yet their ultimate impact on trade levels was muted. Pearce notes that the tariffs failed to reduce the US trade deficit, which remained consistent due to fiscal stimulus measures.
“I think the impact was relatively small. Also, the impact on inflation was blunted because we saw a big depreciation of the renminbi against the dollar,” Pearce adds. He says that the tariffs “were no more than sand in the wheels of global commerce.”
Target Is China, Europe Is Vulnerable
“In a second Trump administration, the proposed revocation of China’s permanent normal trade relations (PNTR) status, coupled with a substantial increase in protectionist measures, could markedly intensify the ongoing deglobalization process,” states Verisk Maplecroft’s Political Risk Outlook published in November. “With proposals for 60% tariffs on goods from China and 10% to 20% on imports from the rest of the world, Washington’s approach would likely spark reciprocal actions that together could cause significant upheaval in global supply chains and trade flows.”
The Organization for Economic Cooperation and Development (OECD) reported in December that since the pandemic, “Global trade volumes are recovering, with a projected increase of 3.6% in 2024.” But while the OECD expects the global economy to expand by 3.3% annually over the next two years, the organization’s Chief Economist Álvaro Pereira comments in the report that this growth faces “increasing risks related to rising trade tensions and protectionism, a possible escalation of geopolitical conflicts, and challenging fiscal policies in some countries.”
Europe faces heightened risks from potential US trade tariffs, largely due to its status as an open economy heavily reliant on international trade. European Central Bank (ECB) officials and other policymakers have voiced significant concerns about Trump’s statements. Some European leaders have hinted at potential retaliation if the proposed tariffs materialize.
“Eventually, this could turn into a trade war, which would be extremely detrimental to the world economy…. It would be a lose-lose situation for everyone,” said ECB Vice President Luis de Guindos in an interview with Helsingin Sanomat, a Finnish newspaper.
The 20 countries sharing the euro are particularly vulnerable. Higher US tariffs could reduce European exports, which would limit economic growth across the eurozone. These outcomes would complicate the ECB’s efforts to stabilize the economy, particularly as it grapples with sluggish post-pandemic recovery and persistent geopolitical uncertainties.
This scenario underscores the broader implications of US protectionist measures, which could reverberate through global trade networks, with Europe among the most affected regions. The possibility of retaliatory measures raises the specter of a broader trade war, further straining transatlantic economic relations.
“All this put together makes me think that we will have a reduction in growth but also a reduction in inflation,” ECB executive board member Piero Cipollone said at a financial conference in December.
During the first wave of US tariffs in Trump’s initial term, Europe and the UK retaliated by targeting iconic American products, such as Harley-Davidson motorcycles and certain whiskey brands. These countermeasures strategically targeted symbolic industries and regions tied to US identity and economic strength. Harley-Davidson, already struggling with declining domestic demand, could once again find itself among the casualties of the anticipated tariff campaign.
Chinese Retaliation
China, often criticized for its protectionist policies and extensive government support for domestic industries, is widely regarded as the primary target of the evolving US trade policy. Future members of the Trump administration, including Marco Rubio—the nominee for secretary of state, known for his hardline stance on China—have emphasized that China remains the chief strategic rival to the US.
As in 2018, any increase in US tariffs would likely provoke retaliation from China. Based on past actions, Beijing could target US agricultural imports, including farm produce and cattle, while also diversifying its trade relationships. This might involve seeking alternative markets for Chinese goods and increasing investments in countries that maintain favorable trade conditions with the US.
Chinese policymakers are reportedly weighing the option of allowing the yuan to weaken in 2025 to offset the impact of heightened US tariffs. According to Reuters, the move reflects a broader strategy to bolster economic resilience in response to proposed punitive trade measures.
Countries like Mexico and Vietnam are particularly well positioned to benefit from these dynamics. With strong economic ties to both the US and China, these countries stand to gain from companies seeking to shift supply chains or reduce exposure to escalating trade tensions. Verisk Maplecroft notes this trend in its November report.
Meanwhile, Chinese companies are adapting to the shifting trade landscape by ramping up M&A with foreign partners. These efforts aim to solidify the companies’ foothold in international markets and mitigate the impact of potential trade barriers.
“The Chinese companies are likely to take two different kinds of actions, depending on their position in their respective industry. Some of them will try to explore oversea markets other than the US,” says Stanley Lah, Asia-Pacific and China M&A services leader at Deloitte in Hong Kong.
“For those that continue to target the US market, they will have to diversify their production location to other places that are less likely to suffer from the potential tariffs,” concludes Lah. “For those Chinese companies that are exploring new oversea markets, acquiring or forming a joint venture with local companies can help them penetrate those markets quickly. And for those Chinese companies diversifying their production outside China, M&A is usually more efficient than greenfield investment in terms of scaling up their production.”
Mexico And Canada Decipher US Rhetoric
Trump has threatened, on his Truth Social platform, to impose a 25% tariff on all goods imported from Mexico and Canada. While discussions with Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau appear to have softened his stance, uncertainties remain.
While such threats create uncertainty for investors in Mexico, they also underscore the importance of diplomatic engagement in mitigating potential trade conflicts. This back-and-forth underscores how policy shifts influence economic ties, and it highlights the need for agility among businesses.
“You know you must take Trump very seriously, but not literally,” says Arantza Alonso, a senior analyst at risk consultant Verisk Maplecroft in Mexico City. A 25% tariff could harm the Mexican economy in several ways, including a general decline in foreign direct investment from those corporations, including Chinese companies, planning to open factories in Mexico and export directly to the US, Alonso explains.
Reality often proves more complex than campaign rhetoric. When Trump entered the White House in 2017, he promised to renegotiate the North American Free Trade Agreement (NAFTA) and build a border wall at Mexico’s expense. By the end of his first term, however, the wall remained incomplete and NAFTA had been replaced by the United States-Mexico-Canada Agreement (USMCA), a deal that preserved many of the previous pact’s core provisions with only modest changes.
Despite the heated rhetoric, Mexico’s economy thrived during Trump’s presidency, attracting significant foreign investment, particularly in the automotive sector. The big question now is what will happen when the USMCA comes up for renegotiation in 2026.
S&P Global has warned that tariffs on Mexico and Canada could heavily impact US automakers’ profit margins.
Under the current agreement, 75% of a passenger car or light truck’s content, measured by value, must be sourced from North America; and 40% must come from manufacturers paying workers at least $16 an hour. “Intermediate goods cross the US-Mexico border multiple times before being converted into final products,” Alonso explains. “For example, of the cars Mexico exports to the US, around 70% of their parts come from the US itself.”
Additional tariffs on imports from Mexico would raise production costs for Mexican companies and US corporations with tightly interconnected supply chains, potentially undermining their competitiveness. Similar rules of origin apply to other industries, including chemicals, electrical products, machinery, and textiles.
If the US follows through with Trump’s proposed general tariff of 25% on all imports from Mexico, the repercussions could be severe. Mexico would likely retaliate, with agricultural products—one of the largest categories of US exports to Mexico—being a primary target. Such measures could disrupt trade, escalate tensions, and strain economic ties between the two nations.
“And those will affect mostly red states such as Texas, Nebraska, Iowa, and the Dakotas, where these farm products are cultivated, and that form a key part of Trump’s electoral base,” Alonso adds.
Tiff Macklem, Governor of the Bank of Canada, said, “No one knows how this will play out in the months ahead—whether tariffs will be imposed, whether exemptions get agreed, or whether retaliatory measures will be put in place. This is a major new uncertainty.
Economists have long criticized tariffs for increasing consumers’ costs, contributing to higher inflation, and distorting supply chains by encouraging production in less competitive locations. As a result, tariffs often deliver economic drawbacks that outweigh their intended protective benefits, impacting both producers and consumers.
“My view is that tariffs at a modest level, a relatively limited level, I don’t think will have a major impact on global trade. Most of those costs can get absorbed in exchange rates across supply chains,” says Capital Economics’ Shearing.
“That’s not to defend tariffs at all. I think that trade tariffs are not good economics; they’re poor economics,” Shearing concludes. “But I don’t think they’re as damaging as some say. This is not, to my mind, a sensible policy; and it’s not something that’s going to generate economic gains on the scale that Trump and his advisers believe.”