What impact will the increase in tariffs by the United States have on global trade?

The U.S. Has Effectively Withdrawn from the WTO

This shift marks the complete failure of the decades-long U.S. free trade roadmap. The original U.S. strategy was based on an idealistic vision: by lowering tariffs first, the U.S. would encourage other countries to do the same, ultimately achieving a world of zero tariffs. For decades, the U.S. maintained the lowest tariffs and market entry barriers globally. However, it has now realized that waiting for the world to follow suit would lead to bankruptcy—its national debt is unsustainable, and it can no longer afford to play this game.

Regarding the U.S.’s historically low tariffs, some argue that this was precisely why American consumer spending was so strong, allowing the country to take advantage of the global market. This may be true—despite recent changes, the U.S. still has some of the lowest prices in the world for consumer electronics and automobiles, second only to China. Before the pandemic, prices in the U.S. were often even lower than in China.

A more critical issue now is that by abandoning its previous trade strategy, the U.S. has effectively dismantled the global free trade consensus that it once led. This consensus was underpinned by the enormous U.S. consumer market, which benefited from low tariffs. The question now is whether the EU and East Asia can step up to fill the void and take on the role of global free trade leaders.

Currently, the U.S. runs an annual trade deficit of $1.2 trillion, mostly in consumer goods—a vital component of global trade. If the U.S. chooses to endure a severe economic downturn and forcefully suppress imports through tariffs, someone else must step in to maintain global consumption. Who will fill the $1.2 trillion gap—or even half of it, around $600 billion? This shortfall could have a multiplier effect, meaning the real impact on global trade might be even greater.

In a way, U.S. physical consumption is similar to China’s pre-crisis real estate sector—both have significant bubble components. But whether it’s a bubble or not, its disappearance would leave a massive void.

If no country steps up to replace the U.S. in stabilizing the free trade system, then, in the absence of a shared trade framework, nations may resort to protectionism. The WTO negotiations had previously established a system where countries relinquished the use of tariffs as a bilateral bargaining tool (the principle of non-discriminatory tariffs). In other words, whatever concessions could be made had already been made under WTO rules, and anything non-negotiable wasn’t even up for discussion. But with the U.S. abandoning the WTO framework, countries now have the freedom to act independently, which could lead to global trade fragmentation.

Countries’ reactions to the U.S. withdrawal could go in two directions:

1. Retaliation from developed nations – The EU and other advanced economies may respond by targeting U.S. strengths, such as service trade. This could push U.S. tech companies to further globalize their operations, effectively outsourcing American jobs to maintain trade access. This aligns with an idea I mentioned three weeks ago.

2. Concessions from developing nations – Countries like Vietnam might opt to compromise, opening their markets in exchange for lower U.S. tariffs and better access to American consumers. For them, competing with the U.S. in its key industries is unlikely in the foreseeable future. This would essentially revert trade relations to a pre-WTO bilateral model.

A Side Note: A World Becoming More Unrestrained

The U.S.’s retreat from global affairs has granted many political elites greater freedom to act. This isn’t about ideology—it’s simply that the so-called “international scrutiny” has lost its deterrent power. Historically, America maintained global accountability (I’d estimate 60% of it, with the EU handling another 20%). Now that it’s clear the U.S. is stepping back, many governments have become significantly more assertive. Just in the past month, we’ve seen:

• Singapore invoking its Internal Security Act for the first time in years.

• Niger seizing state-owned overseas assets.

• France using legal measures to block Marine Le Pen from running in the next presidential election.

• El Salvador barring its top political rival from elections.

• Syria’s HTS crushing opposition forces.

• Renewed conflict between Rwanda and the Democratic Republic of Congo.

Such events were rare before the pandemic, but their frequency has surged. It has nothing to do with political leanings or whether a country is allied with the U.S.—rather, it’s simply that when power is unchecked, bold moves follow.

Perhaps the new normal has truly arrived.