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We’re unlikely to see any winners in a global trade war
In December, in our final Economic Outlook of 2024, our team of Atradius economists predicted a gradual phasing in of the tariffs promised by Donald Trump during his presidential campaign. How wrong we were.
During the few weeks since his inauguration an unprecedented number of executive orders have been signed and implemented. The orders range from policies curbing immigration to tariffs directed against individual countries and specific products.
The volume and speed of implementation of these orders, along with retaliatory tariffs issued by countries in the firing line of President Trump’s tariff announcements, have resulted in what we have dubbed ‘turbulence’ in the global economy. To put it baldly, we are witnessing the outbreak of a global trade war.
In light of such changes to the trade landscape, we have been compelled to revise our global growth outlook downwards for both 2025 and 2026. We have published our revised baseline scenario in our Interim Economic Outlook, Turbulence.
US targets allies in its trade war
Less than two weeks after his inauguration in January 2025, Trump issued executive orders announcing tariffs on two of the US’s closest trading allies, Canada and Mexico, as he targets trading partners with a large trade deficit with the USA.
He also announced an escalation of tariffs on his old sparring partner, China. While Canada and Mexico enjoyed a brief 30-day respite, 10% tariffs on imports from China were imposed within three days of the executive order. Trump then turned his attention towards more trading allies, with his sights now set on Europe.
With the exception of Mexico, advanced economies are currently facing the brunt of the US tariffs and economic fallout. Canada, an early target in Trump’s trade war, is likely to be pushed into recession by the end of the year. The outlook Japan has also deteriorated.
Within the eurozone, countries with trade dependent economies such as Germany and the Netherlands will be hit harder than countries with a more closed economy such as France. Trump’s approach is protectionism and this bad is for global trade and production.
Among the advanced economies, the US itself is likely to suffer the most severe consequences of this economic policy. To put it bluntly, the US has shot itself in its foot.
How will emerging economies fare in trade wars?
As mentioned above, Mexico is the emerging economy currently most at risk from the tariffs. In our revised outlook, it is facing a growth outlook of just 0.4% for 2025, down from 1.3% in 2024.
However the bigger picture for emerging economies is complicated. We have revised growth predictions upwards for the main markets in Eastern Europe (Turkey and Russia). Whereas Latin America will, mainly, see a significant downward revision in growth forecasts.
As a whole, the outlook for Emerging Asia currently remains unchanged. However, economies such as India, Thailand and Vietnam (which also have a large trade surplus with the USA) may yet find themselves on the receiving end of punitive tariffs.
Do the Trump tariffs make economic sense?
Our team of Atradius economists comprising Dana Bodnar, Theo Smid and myself asked ourselves the question, do these tariffs make economic sense? Our answer is unequivocally, no. In economic terms, they’re a pretty bad idea. You can read how we came to this conclusion and the impact that the current US policy is likely to have on the rest of the world in our Interim Economic Outlook, Turbulence.