Despite tariffs, global trade keeps growing 鈥� just with new partners
| Boston, Rio de Janeiro, Toronto, Beijing, and Mexico City
The ingredients for deglobalization are all there: rising tariffs, growing wariness of reliance on other nations for key goods, and the world鈥檚 top two economies weaponizing international commerce.
And yet, world trade is proving remarkably resilient.
One year after President Donald Trump announced a raft of tariffs on a slew of countries intended to 鈥渇ree鈥� the United States from dependence on foreign goods, using the moniker 鈥淟iberation Day,鈥欌�� global trade continues to expand and set records. The pace of that expansion is likely to slow this year. But it鈥檚 not reversing direction.
Why We Wrote This
President Donald Trump鈥檚 tariffs were aimed at strengthening America鈥檚 economy and trading position. But they are also prompting a profound restructuring of global supply chains, with trade continuing to set records even without American or Chinese partnerships.
鈥淭rade is a little bit like water,鈥� said Cecilia Malmstr枚m, a former European commissioner for trade, speaking at a trade webcast this month hosted by the Peterson Institute for International Economics, where she is a nonresident senior fellow. 鈥淚t finds new ways all the time鈥� to circumvent obstacles that governments impose on it.
This new trade order is messy. And it was made messier in February, when the U.S. Supreme Court struck down as illegal an array of tariffs imposed by Mr. Trump through executive orders. The administration quickly imposed temporary tariffs of up to 15% on all countries as a stopgap measure, and it is working to reinstate permanent ones using different presidential authorities.
Nations are unlikely to stop diversifying because of America鈥檚 state of flux. But they are just as unlikely to back away from trade with the U.S. and China. And the two behemoths still traded with one another to the tune of more than $400 billion last year.
Instead, other nations are making a conscious push to diversify beyond U.S. tariffs and China鈥檚 chokehold over strategic industries as a way to reduce risk in uncertain times. That pressure, especially from the U.S., is accelerating the diversification.
Finalizing new deals
In one of the most striking examples, the European Union spent more than 25 years trying to finalize a trade agreement with Mercosur, the Southern Common Market made up of Argentina, Brazil, Paraguay, Uruguay, and, since 2024, Bolivia. Finally, in January, they signed a provisional deal that drops tariffs immediately, beginning Friday, while the individual nations formally endorse the agreement.
Despite lingering questions from the European Court of Justice about the agreement, M谩rcio Elias Rosa, Brazil鈥檚 minister of development, industry, commerce, and services, said during a recent interview that he foresees 鈥渘o difficulties鈥� in the deal being fully approved in the long run. 鈥淭his is perhaps the largest economic bloc to form in recent times,鈥欌�� he said. 鈥淲e are talking about 720 million people who will be connected through a free trade agreement.鈥�
Mercosur鈥檚 dealmaking predates Mr. Trump鈥檚 second term; the bloc signed a deal with Singapore in 2023. But Mr. Trump鈥檚 40% tariff on Brazilian exports to the U.S. last year has added urgency to that nation鈥檚 push to diversify its export markets. Last year, Mercosur signed a free-trade agreement with the European Free Trade Association (Iceland, Liechtenstein, Norway, and Switzerland).
鈥淏razil is at the center of the China-U.S. clash, since both countries are its two top trading partners,鈥� says Roberto Simon, a nonresident fellow on Latin America with the Stimson Center, a nonprofit think tank based in Washington. 鈥淚t is heavily investing in bringing the Europeans closer ... and actively trying to expand relations with the GCC [Gulf Cooperation Council] countries in the Middle East and with India.鈥�
Foreign Minister Mauro Vieira, representing Brazilian President Luiz In谩cio Lula da Silva, was set to sign the EU-Mercosur agreement into law in a ceremony in Brasilia on Tuesday afternoon.
The export-dependent EU is also pushing to diversify markets for its goods. Besides its agreement with Mercosur, the bloc concluded trade deals with Australia and India this year and is advancing talks with Indonesia to both strengthen its Indo-Pacific economic partnerships and reduce its reliance on others. The EU is also updating an agreement with Mexico and negotiating with the Philippines, Thailand, and Malaysia.
Pressure from U.S. tariffs has also helped Indonesia push through domestic reforms and forge closer trade ties with its neighbors.
While U.S. tariffs hurt the Indonesian economy, an analysis by its government showed that retaliation would make matters worse. So, Jakarta adopted its own strategy: 鈥淭he US is a problem, but hey, let鈥檚 expand trade with each other and with the rest of the world,鈥� Mari Elka Pangestu, Indonesia鈥檚 former trade minister and now a professor of international economics at the University of Indonesia, said at the Peterson Institute event. 鈥淎nd this is exactly what we did.鈥�
That nation, part of the Association of Southeast Asian Nations (ASEAN), saw exports grow more than 6% last year. It also finalized a deal with the U.S. in February that eliminates tariffs from both sides.
China鈥檚 game plan
China is pursuing its own diversification strategy. While its exports to the U.S. have shrunk amid trade wars 鈥� dropping 20% last year alone 鈥� its overall exports have climbed robustly, with its trade surplus topping $1.2 trillion for the first time last year. So far this year, Chinese exports are running nearly 15% ahead of the same period last year.
Beijing accomplished this by boosting exports to rapidly growing markets in Southeast Asia, Africa, and Latin America, according to official customs data. The 11-nation ASEAN bloc has become a bigger trading partner with China than either the United States or the EU.
Underlying this trend is China鈥檚 massive, sophisticated, and increasingly automated manufacturing ecosystem, which makes it difficult for other countries to compete. Instead of building their own domestic manufacturing bases, many nations choose to buy inexpensive goods from China, experts say.
鈥淐hina has turned manufacturing into a table tennis game,鈥� says Li Shuo, a senior fellow with the Asia Society Policy Institute鈥檚 Center for China Analysis. 鈥淭hey will get all the gold medals.鈥�
Under its new five-year economic plan, China is doubling down on advanced industrial manufacturing, while also seeking to upgrade legacy industries to keep jobs in China. Beijing is also working to tighten its control over global supply chains. In April, it issued new regulations expanding the government鈥檚 power to investigate and sanction foreign entities and individuals that restrict China鈥檚 supply chains.
鈥淕overnments like Malaysia, Indonesia, Thailand 鈥� they do not have the fiscal power to聽build supply chains like China. They basically just give that market to China,鈥� says Dan Wang, the China director for the Eurasia Group, a political risk research and consulting firm based in New York. 鈥淚t鈥檚 like a model that cannot be challenged.鈥�
But that prowess is also fueling global concerns. Many developing nations worry that, because of China, climbing the industrial ladder is no longer a practical road to development. European and other developed countries are working to avoid becoming a dumping ground for excess Chinese production. Beijing鈥檚 control over economic chokepoints and its willingness to use them is stirring national security concerns, especially its near-monopoly over the processing of rare-earth minerals, critical to certain key industries.
Last week, the U.S. and the EU signed a new deal on critical minerals to reduce their dependency on China. 鈥淭he United States and the European Union share a commitment to addressing the nonmarket policies and practices that have distorted critical minerals supply chains,鈥� said U.S. Trade Representative Jamieson Greer.
Finding new partners
Increasingly, world leaders are speaking out against the might-makes-right trade order that the U.S. and China are carving out. Mr. Lula of Brazil has become a vocal defender of multilateralism. At a food fair in Brasilia last week, he quipped that he would give each of the presidents聽鈥� Mr. Trump and Xi Jinping聽鈥� a Brazilian jabuticaba tree, whose fruit is known for its calming properties.
Canadian Prime Minister Mark Carney, who generated global headlines with a winter speech at the Davos, Switzerland, economic summit, has warned that there is no going back to the global order once championed by the U.S.
鈥淢any of our former strengths, based on our close ties to America, have become weaknesses,鈥� he told Canadians in an online speech on April 19.
In his first year as prime minister, Mr. Carney claims to have signed 20 defense and trade deals across four continents, including one with China in January that the U.S. lambasted. On Monday, he announced Canada鈥檚 first-ever national sovereign wealth fund. Earlier this month, he announced a massive summit, inviting more than 100 global investors to Toronto this fall, aiming to attract billions of dollars in foreign investment for Canada.
World Trade Organization
The North American trade deal between the U.S., Mexico, and Canada, known as the USMCA, has shielded 85% of Canada鈥檚 exports to the U.S. from tariffs. But that agreement is due for review in July. On Monday, Mr. Carney convened the first meeting of a new advisory council he announced this month to deal with upcoming trade negotiations.
Mexican exports to the U.S. have also benefited from the USMCA shield. As the top U.S. trade partner, Mexico has worked to balance its relationships with both the U.S. and China. But moves such as its sweeping tariffs on Chinese goods at the start of 2026 show that it might be quietly prioritizing its relationship with its megapower next-door neighbor.
The Mexican levies, which can reach up to 35%, apply to some 1,400 products from China and other Asian countries that don鈥檛 have free trade agreements with Mexico. They鈥檙e intended to block 鈥渂ackdoor鈥� access to the U.S. market.
Measures such as this are seen as setting the groundwork ahead of trilateral USMCA trade renegotiations this summer. Both Mexico and Canada are hoping to dial back the tariffs imposed by Mr. Trump since the beginning of his second term. But reports imply that U.S. tariffs won鈥檛 be reversed.
鈥淭ariffs are here to stay,鈥� Mr. Greer, the U.S. trade representative, told Mexico鈥檚 business community this month, according to Reuters. 鈥淧resident Trump likes them. We will never go back to a zero-tariff world.鈥�
