Trade tensions between the U.S. and China have been simmering for years, but as the world heads toward 2024, the outlook is clouded over with uncertainty, especially following the results of the recent U.S. elections. Analysts predict this could exacerbate global trade frictions and reshape international supply chains.
According to Allianz Trade, if the trade war intensifies under President Trump’s second administration, nominal global trade growth could fall below 5% by 2026. The imposition of renewed tariffs on Chinese imports—and other strategic imports—could potentially plunge global trade growth by as much as 0.6 percentage points (pp), with key sectors including automotive manufacturing and transport significantly affected.
Recent trends have shown China bearing much of the burden of these economic shifts. The projected loss of $67 billion worth of exports from China and the EU by 2025-26 is particularly alarming, especially considering European exports have already taken substantial hits from past tariffs, costing the continent nearly $38 billion annually. If the situation escalates to what analysts term a "full-blown trade war," with potential tariffs hitting 60% on China and 10% on other nations, the impact could be devastating—total losses could accumulate to nearly $217 billion, affecting trade relations globally.
The U.S. economy’s prowess, once unmatched since the late 20th century, is now waning. Its share of global trade has dimmed from nearly 15% down to below 10%. Meanwhile, China’s share has surged, solidifying its position as the world’s leading manufacturer since overtaking the U.S. back in 2009.
While the potential for confrontation remains heightened, so do the diplomatic efforts between nations. Economic statecraft from both China and the U.S. is reshaping the geopolitical terrain. China employs what’s known as the "silk" doctrine, focused on soft power and economic influence, as opposed to the U.S. which is described as adhering to "godfathering," characterized by military alliances and commitments to ‘America First’ policies.
The U.S. and the EU do share common ground on certain geopolitical issues; nevertheless, their economic interests often clash. The EU, caught between allegiance to the U.S. and its significant trade ties to China, could find aligning itself with one side or the other potentially costly. Despite collaboration on geopolitical fronts, past tariffs indicate the steep price the EU pays, which is often heftier than what the U.S. experiences for similar measures.
Internal divisions within the EU complicate postures toward the U.S. and China. While industries across the continent feel the squeeze of U.S. tariffs, divisions might lead the U.S. and China to exploit these differences to seek preferential deals, undermining EU solidarity.
Interestingly, as U.S. imports pull away from China, bilateral trade between nations more geopolitically aligned has steadily risen, now accounting for 60% of global trade. This signifies not just resilience but also practical adaptation to the realities of international trade.
You might wonder: What about the next generation of trade hubs? Regions like Southeast Asia, the Philippines, and the UAE are positioning themselves to fill gaps left by traditional powers. These next-generation hubs are spreading their wings and are expected to increase their global export share significantly over the coming years, illustrating how countries can pivot amid geopolitical strains.
According to estimates from Allianz Trade, these economies could gain up to 1.6pp of global exports by 2029, indicating more than $1 trillion worth of exports, and signaling fundamental shifts within the trade order. Yet, the rapid evolution of global supply chains and trade dynamics raises new challenges—complexity levels have doubled since 2017 and increased sixfold since the pandemic began.
China continues to nurture ties across Africa and Asia, cementing its influence through financial agreements, investments, and political alliances. The successful China-Africa summit earlier this year, wherein China pledged over $50 billion toward African infrastructure projects, showcases this approach.
Evidence of shifting allegiances can be seen as Latin America and parts of Africa drift closer to China, all the more so as it relates to resource-rich partnerships and trade agreements. This outcome stands as yet another stark reminder of how the dynamics continue to evolve.
All things considered, the international trading arena could face turbulent times, marked by renewed hostilities and unpredictable shifts. With the myriad of geopolitical concerns, climate policies, and military engagements veering off-course, businesses everywhere must prepare for what lies ahead.
The overarching conclusion seems to be this: The U.S. might be edging away from its once-uncontested leadership position, as nations worldwide, particularly in the Global South, begin building not just economic ties but also new alliances independent of U.S. influence and whims.
The question remains whether traditional centers of global power, chiefly the U.S. and its allies, can adapt to these significant transformations or if they will lag behind as newer players rise steadily to prominence.
