President Donald Trump’s return to the White House in 2025 brought a dramatic shift to global trade, with sweeping tariffs on US trading partners that pushed import taxes to levels unseen since the Great Depression. The measures rattled financial markets and triggered rounds of negotiations over trade and investment agreements.
Trump’s tariffs, aimed at reviving the US manufacturing base, raised the average import duty to nearly 17 percent, up from under 3 percent at the end of 2024. According to Yale Budget Lab, the levies now generate around $30 billion a month in revenue for the US Treasury.
World leaders quickly sought deals to reduce the tariffs, often pledging billions in US investment in exchange. Framework agreements were reached with the European Union, the UK, Switzerland, Japan, South Korea, and Vietnam. However, a final deal with China remained elusive despite multiple negotiation rounds and a high-profile meeting between Trump and Chinese leader Xi Jinping.
The EU faced criticism for its arrangement, which included a 15 percent tariff on exports and vague investment commitments. French Prime Minister François Bayrou described the deal as an act of submission, calling it a “sombre day” for the bloc. Still, exemptions and market diversification allowed European exporters to cope, with Societe Generale estimating the direct impact at just 0.37 percent of GDP.
China’s trade surplus, meanwhile, exceeded $1 trillion. Beijing diversified away from the US, upgraded its manufacturing sector, and leveraged rare earth minerals to push back against Western pressure. Contrary to predictions, the global economy avoided the severe inflation and economic collapse many analysts expected. The US experienced a modest contraction early in the year but rebounded due to strong consumer spending and a surge in artificial intelligence investment. The International Monetary Fund raised its global growth forecast twice after the initial tariff announcements.
Looking ahead to 2026, a major question is whether Trump’s tariffs will remain in place. The US Supreme Court heard a challenge in late 2025 over the legal basis for the “reciprocal” tariffs and those linked to China, Canada, and Mexico. A ruling is expected early this year. The administration has indicated it could rely on other legal authorities to maintain tariffs if the court rules against it, though these options may be limited and could require renegotiations.
Europe will also face critical decisions regarding its trade relationship with China. While Chinese exporters have benefited from yuan depreciation and higher-value manufacturing, European firms have struggled to expand in a slowing Chinese market. Officials are exploring whether tariffs or other measures are needed to address trade imbalances.
Efforts to finalize a US-China deal remain central to the 2026 outlook, with Trump and Xi tentatively planning two meetings this year. In addition, the North American Free Trade Agreement with Canada and Mexico is due for review, with uncertainty over whether it will be renewed, amended, or allowed to expire.
Chris Iggo, chief investment officer at Core Investments, noted that the administration appears to be moderating its harshest tariff measures to reduce inflationary pressure. He added that a trade deal with China would be beneficial both politically and economically, especially with midterm elections approaching.
