The outcome of the US presidential elections on 5 November will decide the extent of the protectionist turn taken across the Atlantic. However, global exports have so far resisted the rise in tariff barriers. By the end of the decade, the IMF forecasts growth in exports of goods similar to or even slightly higher than that of world GDP. Tighter protectionist measures will affect global growth, but the effects on international trade will be more nuanced.
If tariffs increase across the board – one of Donald Trump’s campaign promises – and aside from China, which would see even greater tariff hikes, the countries most directly affected will be those bordering or geographically close to the United States (see table 1).
SHARE OF EXPORTS TO THE US FOR SELECTED COUNTRIES*
(JUNE 2024)
Canada and Mexico, which export more than half of their goods to the US, equivalent to more than 20% of their GDP, would see the greatest impact, followed by Central America (Honduras, Costa Rica) and then South America. The second worst-affected group would be the United States’ major trading partners in Asia-Pacific – in particular Taiwan and South Korea, but also Australia and Japan – which export more than 10% of their goods to the US. In Europe, the proportion of goods exported to the US by Ireland, the Netherlands and the UK is above the world average, which sits between 8% and 9%. France, Spain and Germany are close to the European average (5.3%), while Eastern European countries are the ones least directly exposed within Europe.
WORLD EXPORTS IN VOLUMERegionalisation and derisking will underpin global trade
Taking a step back, however, we can see that despite the increase in protectionism and geopolitical tensions around the world, global goods exports have continued to rise, driven by emerging markets and the resilience of US demand (see chart 1).
Freight shipping costs have fallen significantly from levels seen in the middle of the summer and have provided additional support to trading volumes.[1] That said, trends are less positive within Europe because of the economic slowdown in the European Union and the decline in exports to China.
IMF ANNUAL GROWTH PROJECTIONS
(OCTOBER 2024)In their October 2024 forecasts, the IMF and WTO agreed that global trade would continue to grow at a solid pace of at least 3% next year.[2] Even more significantly, the IMF expects goods exports to rise by 13.9% overall in real terms between 2026 and 2029, slightly more than the forecast of 13.2% for global GDP (see chart 2). At a time of growing protectionism around the world, these figures are remarkable. In addition, while the share of services exports in world trade is set to grow, its knock-on effects and complementarity with goods will fuel demand for the latter[3].
As a result, rather than deglobalisation – which we would define as a retractation of international trade – the world economy seems to be heading towards greater regionalisation of trade.[4] In addition, the derisking policy being pursued by the United States and European Union – which aims to diversify the commercial partners, while strengthening the production of strategic activities on the national territory (semiconductors, electric batteries and rare-earth elements) will help drive that regionalisation. In practical terms, this could strengthen current trends, with a stronger position in global supply chains for medium-sized industrial countries that are close to or integrated with the main regional economic centres and benefiting from relatively lower labour costs: India for Southeast Asia, Vietnam and Malaysia for East Asia, Poland and Turkey for Europe, Mexico for North America. In other words, the market share captured by these countries since 2018 – the year when US adopted tougher sanctions against China – from “traditional” industrial countries in Europe (Germany and the UK) and Asia (Japan, South Korea and Hong Kong) is set to increase (see chart 3).
CHANGE IN WORLD EXPORTS SHARE
SINCE JANUARY 2018This is all the more likely as Chinese companies intend to increase their direct investments in these territories, precisely in order to strengthen their local positions and circumvent the export barriers they are facing. It is not just advanced economies that are taking a tougher line on Chinese exports.
A growing number of emerging economies are introducing similar measures, for the same purpose of protecting their industrial sectors against greater competition from Chinese manufacturers.
For example, in June 2024 Turkey introduced a 40% tariff on vehicles imported from China. Brazil also introduced new tariffs on various imports (iron, steel, fibre optic cables) in October, which, although it is not explicitly aimed at China, particularly affect the latter.
For these countries, the rise in customs barriers between the major economic powers are an opportunity to attract foreign investment and develop their economies, as witnessed by the drastic increase in foreign direct investment flowing into Hungary. However, this could also lead to greater political tension within each economic bloc, and particularly within the European Union. A balance must be struck between economic growth, industrial development and economic sovereignty.
So far, greater trade tensions have not resulted in a shortening of global supply chains but rather a lengthening, the reason being the emergence of new countries (those mentioned previously) which interposed themselves in the production chain linking the major economic powers in "direct conflict".[5] This is leading to more exports of intermediate goods – which make up approximately half of global goods exports – and, in fine, more exchanges overall[6]. Although the increase in protectionist measures around the world is negative for global growth, their effects on international trade is not as clear-cut as it might first appear.
