Global trade faces the fallout of America’s new era

Trump’s commitments and America's “Rust Belt”

In early February, U.S. President Donald Trump began fulfilling his campaign promises, one of the most significant being the return of numerous manufacturing industries to the United States—industries that had been outsourced due to globalization. This was a key reason why voters from America’s so-called “Rust Belt” supported Trump in the election. This region includes Pennsylvania, Ohio, Illinois, and Michigan—swing states that ultimately determined the outcome of the presidential race. In a sense, Trump “owed” these voters.

Moreover, Trump aligns with the ideology of American isolationism, which was popular in the first half of the 20th century. This perspective sees the U.S. as a self-sufficient economy that should prioritize its own interests in global trade. In contrast, globalization allows for the outsourcing of certain industries to other countries. This process led to the decline of industrial centers in the U.S., forming the “Rust Belt” and contributed to America’s trade deficit.

During his campaign, Trump promised to impose higher tariffs on imports from countries with a trade surplus with the U.S., particularly China, for which he proposed a 60% tariff. This was aimed at achieving two goals:

1. Encouraging the return of manufacturing to the U.S., thereby addressing the demands of his voter base.
2. Generating additional revenue for the federal budget through tariffs, which would help fund Trump's other campaign promise—tax cuts for American businesses, aimed at stimulating domestic investment.

Given that total imports from Canada, China, and Mexico amount to approximately $1.3 trillion, an additional 10% tariff could theoretically bring $130 billion in revenue to the U.S. However, in practice, such a move would have widespread economic repercussions, making it difficult to extract additional revenue painlessly.

The impact of tariffs on prices

U.S. trade with Canada, China, and Mexico involves complex supply chains. This is especially true for Canada and Mexico, which have free trade agreements with the U.S. under the USMCA (United States-Mexico-Canada Agreement). This agreement, signed in 2020 during Trump’s first presidency, replaced NAFTA (North American Free Trade Agreement) and allows goods containing components made in any of the three countries to be traded tariff-free.

These distributed production chains mean that parts of products are manufactured in Mexico or Canada, with final assembly in the U.S. Imposing a 25% tariff at every border crossing would hurt not only Canadian and Mexican companies but also American businesses that rely on these supply chains. Higher tariffs would increase production costs and ultimately lead to higher prices for American consumers.

Nevertheless, on February 4, the U.S. imposed a 25% tariff on all imports from Canada and Mexico, along with a 10% tariff on Chinese imports.

To justify these measures, Trump invoked a 1971 emergency law that grants the president the authority to bypass Congress in extraordinary situations. He linked the tariffs to illegal immigration and the smuggling of fentanyl from Canada and Mexico, creating a sense of urgency.

But if the issue of migrants truly exists in U.S.-Mexico relations, the same cannot be said about Canada, just as it cannot be said about fentanyl. However, Trump had previously stated many times that Canada should become the 51st state of the U.S., and many interpreted the introduction of tariffs as a way to pressure the country. Although these are still separate matters.

All three countries targeted by the tariffs immediately responded with reciprocal measures. However, China was extremely cautious. It imposed tariffs on certain American goods—coal, liquefied natural gas—but only for a total amount of $14 billion. In the structure of China’s imports from the U.S. ($270 billion in the first 11 months of 2024), this is relatively insignificant.

In this case, Beijing had to save face, so imposing some tariffs was inevitable. But it also likely took into account that Trump introduced only 10% tariffs, which is significantly lower than his campaign promises. Additionally, China maintains working contacts with the new administration, and Trump has already held a phone conversation with Chinese President Xi Jinping. Accordingly, one can assume that negotiations are underway.

It is notable that during Trump's previous presidency, there was already a trade war between the U.S. and China. In 2019, Trump announced plans to impose a 10% tariff on $300 billion worth of Chinese imports. China responded with 10% and 5% tariffs on $110 billion worth of U.S. imports. However, in January 2020, the two sides reached a trade agreement, under which China committed to purchasing an additional $200 billion worth of U.S. goods over two years.

Washington and Beijing will reach an agreement

It can be assumed that this time events will unfold following the logic of previous U.S.-China relations under Trump. In the end, both sides will come to an agreement. Because the issue of bilateral trade is very sensitive for both countries.

For China, it is crucial to maintain access to the U.S. market.
For the U.S., it is important that the rising prices of Chinese goods do not lead to inflation, at least until domestic manufacturers begin producing them within the country.
Additionally, the Chinese market generates profits for many American companies, including Elon Musk’s enterprises.

So, in theory, tariffs should lead to the relocation of some manufacturing from China or Mexico to the U.S. But in practice, this raises many questions, including the impact on prices for American consumers. It is obvious that the cost of production in China is significantly lower than in the U.S.—at the very least; China has cheaper labor and lower taxes. One can only imagine how much a product currently imported from China would cost if it were manufactured in Ohio.

Moreover, Trump’s casual attitude toward existing agreements, such as the United States-Mexico-Canada Agreement (USMCA), is likely to make potential investors hesitant. Investors must plan their investments for a relatively long period, and such unpredictability makes this very difficult. Furthermore, the additional inflation caused by Trump’s actions could provoke dissatisfaction among Americans. As a result, investors will likely choose to wait until the next president before making major moves.

The key is to appear victorious

Meanwhile, events unfolded rapidly, as always with Trump. Shortly after imposing tariffs on Canada and Mexico, he announced a one-month delay on their implementation for these countries. He justified this by stating that they had supposedly agreed to strengthen border security, deploy additional forces, and allocate funds to combat fentanyl trafficking and illegal immigration. However, analysts noted that Canada had made these decisions months ago, and Mexico had already sent troops to its border multiple times.

It is clear that these are symbolic measures, which were nonetheless used by Trump to justify delaying the tariffs. Later, he may not impose them at all—the main goal is to appear as a winner who achieved results.

Overall, it looks like the new American president is employing a kind of cavalry charge tactic reminiscent of the 19th century. He makes quick decisions, often on the edge of legality, then negotiates and secures something in return. The challenge is that as this tactic is used repeatedly, people will eventually understand its core principles.

Among these principles is the fact that the key is to agree with Trump publicly while negotiating behind the scenes on the actual terms of agreements.

Somewhere in between a bold decision and backroom bargaining, someone is explaining all the nuances to Trump and outlining the potential consequences of his actions. This may be one reason why he dislikes bureaucracy, which responds to every flashy proposal with dry documents—existing agreements, risk assessments, and legal constraints. That is why Trump has enlisted his ally Elon Musk and his team of 20-year-old tech experts to take on Washington’s bureaucratic system.

One way or another, in this new American story, the biggest casualty will be global trade—and, consequently, globalization itself.

A war of protectionism could reshape the global economy, affecting prices and supply chains worldwide. No one will remain unaffected.

Earlier, the Kazinform News Agency highlighted expert opinions questioning the feasibility of President Donald Trump’s plan to flood the global market with cheap oil.