Protectionism is expected to increase in 2025. Regime changes, geopolitical rivalries and climate change are just a few factors that will continue to push countries to look inward. As the year kicks off, how can we expect this trend to reshape global trade?
The Trump tariff
US President-elect Donald Trump’s campaign promise to impose a 10-20% (and higher in specific cases) across-the-board tariff on all imports to the US has been met with fear and speculation. If his plans go ahead unchanged, economists fear that inflationary pressures they had tried to dampen will return, and point to the retaliatory measures that would likely follow.
The tariffs plans as they stand would be at odds with the United States-Mexico-Canada Agreement, which replaced the North America Free Trade Agreement. GlobalData Latin America economist Ollie Brown outlines that since the agreement “came into effect in 1994, trade between the US, Mexico and Canada has bourgeoned from $290bn to approximately $1.8trn (2024).”
Chatham House associate fellow and UK Trade Policy Observatory director at the University of Sussex Michael Gasiorek says he is “not convinced [Trump] will go ahead with this straight away. I suspect that he will continue to threaten to impose tariffs and may propose a deadline for this. If he does impose widespread tariffs, then it is hard to envisage that the EU will not retaliate”
Gasiorek thinks the EU would go about this “selectively” by choosing “certain products that may be more politically sensitive for the US administration. This is what the EU has done previously [targeting bourbon or motorcycles, for example]. The EU will be careful to minimise damage to itself.”
After the EU imposed import tariffs on Chinese electric vehicles (EVs) in November, China promptly responded with retaliatory tariffs of up to 35% on brandy imports. The move was seen as targeting France, a major exporter of brandy to China and one of the strongest proponents of the EV tariffs. Trade talks are ongoing, but the case may be a cautionary tale for the coming year, during which world leaders could continue to lean into tariffs.
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By GlobalDataTrump is hoping that high duties, or at the very least the threat of them, will entice companies to invest directly in the US. If such a readjustment were to take place and significantly increase foreign investment in the US, experts have highlighted it would take years. In the short term, it is more likely that countries could turn to other providers such as China to “benefit from cheaper Chinese imports”, according to Gasiorek.
In 2024, Mexico, the EU, India, Brazil and other major economies also increased protectionist measures. Mexico applied a 35% import tariff on its textile sector, the EU applied duties of up to 45.3% on Chinese-made EVs, Brazil raised duties on certain polymers by up to 20% and India increased import duties on edible oils from 5.5% to 27.5% to support farmers.
That is to say protectionism, although it will likely be led by Trump’s administration in 2025, has also been on the rise in other major economies. Gasiorek expects this trend to increase, particularly if Trump delivers on his threats. However, “it is very hard to predict which countries and which sectors will be most targeted”.
According to GlobalData senior economist Tom Hopgood, “heightened uncertainty has led to some companies frontloading imports, increasing inventories prior to 21 January to avoid higher prices and manufacturing costs while they adapt to Trump’s second term. With many companies scrambling for extra supply, this could lead to bottlenecks at major ports and supply chain issues causing increased shipping costs.”
It is worth noting that countries have resisted the influx of cheap Chinese imports before because of their potential to hurt domestic markets. The EU says it applied tariffs to Chinese-manufactured EVs because the use of government subsidies was allowing them to undercut European carmakers. Mexico has also come under fire from its North American partners for allegedly being a “backdoor” for cheap Chinese goods.
National security, semiconductors
Many protectionist policies have been justified on national security grounds. US President Joe Biden recently blocked a $15bn (Y2.37trn) bid by Japanese company Nippon Steel to take over US Steel, saying that a domestic steel industry was an “essential national security priority”, despite Japan being a strong ally of the US. While the Nippon Steel takeover bid was embroiled in US campaign politics, the development of other sectors has been unfolding along geopolitical lines.
Since the launch of the US CHIPS Act, Biden’s flagship programme to spur semiconductor development, one of its goals has been to limit the growth of China’s chip sector. Gasiorek says the US will likely continue to try to limit its rival’s tech development but is “less convinced that in the longer term the policy will be successful”. While it could slow progress, it could also “encourage China to invest the resources to develop its own semiconductor industry”.
Japan and the Netherlands, home to companies that make essential components for semiconductor production, have also applied restrictions to foreign investment and trade with China. NatWest Europe economist Aastha Gupta wrote that rather than collapsing trade relationships, protectionist measures like these rearrange them. Companies are “circumventing higher tariffs via ‘connector’ countries that have emerged, in effect restructuring global supply chains. Select countries including Mexico and Vietnam have become the strategic connectors, capturing market share of both Chinese exports and US imports.”
Gasiorek thinks that countries focusing on economic security, which may be defined differently in each individual case, will be one of the biggest drivers of trade policy in 2025. While this won’t necessarily mean the use of protectionist policies, it means “firms will be encouraged to diversify their sources of supply, and a degree of friend-shoring/nearshoring”. He also expects there to be a rise in trade policies that combat climate change and the digitalisation of trade (applying to both the processes of doing trade and digitally delivered goods and services).
