Half a year on, the overthrow of the prevailing multilateral order is an established fact, and the president’s appetite for further upheaval looks undiminished.
So, where’s the damage? There’s been a lot, no doubt, with more to come. Still, given all the drama, the results to date seem a trifle underwhelming.
Perhaps the new era of US protectionism isn’t quite as transformative as the White House would have you believe.
The International Monetary Fund’s new World Economic Outlook expects the US economy to grow 1.9% this year and 2% in 2026—about in line with most estimates of long-term potential growth.
Growth in the advanced economies as a whole is forecast to be 1.8% next year, about the same as in 2024. Emerging markets and developing economies have seen a bigger setback, but they can still look forward to growth of 4.4% in 2026. (All those numbers are better than predicted last April.)
The World Trade Organization forecasts slower growth in global trade next year—a rise of 0.5%, down from this year’s expected 2.4%—but a rise is still a rise.
Not exactly an economic conflagration. To be sure, the new trade regime is still a work-in-regress: Supposing it ever settles down, patterns of commerce and investment will still take a while to stabilize.
Despite the protectionist turn, US imports were roughly 10% higher in real terms in the first half of this year than in the first six months of 2024. (Since exports were basically flat, the trade deficit grew.) This was partly because sellers ramped up foreign purchases ahead of the expected tariffs, blurring the longer-term effects.
Aggregates are misleading in other ways as well—for instance, concealing acute stress faced by particular industries and trading partners.
Yet some of the apparent shortfall of dire consequences is explained by the gap between rhetoric and policy.
The generous way of putting this would be to say that the administration is proving less of a zealot on trade than it pretends—that it uses stunning threats to extract concessions (some of them pro-trade, by the way) as part of a brutally pragmatic approach to making deals.
One of the most shocking aspects of the protectionist turn was the US declaration of a trade war on Canada and Mexico. North America was close to a free trade area, under new rules designed and celebrated by the first Trump administration. Hours after the president was sworn in for his second term, he announced tariffs of 25% on imports from Canada and Mexico as punishment for their failure to control flows of migrants and fentanyl.
In due course these proposed new tariffs were variously affirmed, applied, suspended, revised, and revised again—a process of tactical threats and feints whose end is nowhere in sight.
You’d be forgiven for thinking that Canada and Mexico, uniquely dependent on trade with the US, must be principal victims of the new order. Not so much. Goods deemed compliant with the earlier US-Mexico-Canada agreement (USMCA) are mostly exempt from new tariffs—and ‘compliance’ turns out to be an impressively accommodating concept.
In 2024, less than 40% of US imports from Canada crossed the border under USMCA terms. But roughly 85% can qualify for USMCA treatment if traders ask to be certified and the certifiers decide to be flexible. They asked, and the US said fine.
Canada’s effective tariff rate—revenue divided by the value of exports to the US—was just 3% as of July. Mexico’s was only a little higher, at 4.7%. By this measure, the first and most shocking targets in the administration’s multi-front trade war are almost unscathed.
Other US trade partners are facing higher effective rates—the average across all imports is roughly 10%—but most are still seeking, and being granted, a range of carve-outs and exemptions.
Deal by deal, the US has already excluded more than 40% of imports of machinery and electronics (including smartphones and laptops), roughly 90% of pharmaceuticals, all energy products, and big shares of chemicals, metals and metal products.
All told, as of this summer, officials had shielded non-USMCA imports worth $750 billion in 2024 from the Liberation Day tariffs.
Carve-outs are only just getting started. Last month a new executive order set out a long annex of goods that might qualify for zero tariffs—products that “cannot be grown, mined, or naturally produced in sufficient quantities in the United States to satisfy domestic demand.” (These include goods, such as “aircraft and aircraft parts,” that can in fact be produced in the US, though presumably not naturally and in sufficient quantity.)
Importantly, it gives officials discretion to grant these exemptions to aligned partners with no need for new executive orders. As one law firm explained, “This list serves as both an incentive for alignment and a roadmap for trade partners seeking preferential treatment.”
Tax relief is yet another form of tariff flexibility. For example, US vehicle manufacturers have been lobbying the administration for help in meeting the cost of tariffs on imported car and truck parts. Last week another executive order enlarged and extended to 2030 an existing programme to grant tariff ‘offsets’ based on manufacturers’ domestic production. In effect: Raise tariffs to cut imports; use some of the revenues to subsidize imports.
In one way, this pragmatism, if you will, deserves to be applauded. Low tariffs are better than high tariffs. Compromise is better than unyielding confrontation.
It’s good that the White House isn’t ignoring industry’s cries for help, that trade relations aren’t being completely wrecked, and that financial markets are (for now) unconcerned.
And, as I’ve noted before, the rationale for this overarching approach to deal-making—seek US advantage by inflicting shock and awe on friends and adversaries alike—isn’t unintelligible.
So far, the measurable economic damage isn’t huge. Yet the risks and potential costs are enormous. In the short term, it remains to be seen whether “make a deal” or “tariffs are beautiful” gets the upper hand. The outcome of trade talks with China—compromise or calamity—might clarify that. Regardless, in the longer term, this approach will diminish allies’ trust in the US and hence erode US power.
More prosaically, weaponized trade policy will saddle US producers with endless economic uncertainty, regulatory complexity and bureaucratic meddling.
The administration needs to declare victory—“Look how we’ve repaired a broken system”—and stop. If it just keeps going, the result might be chronic under-performance rather than sudden economic disaster. Why risk either? ©Bloomberg
The author is a Bloomberg Opinion columnist and member of the editorial board covering economics.
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