Trade Matters Less to US Than to Other Economies

Despite multiple tariff announcements, only extra 10% on China has gone into effect

We’re a month into President Trump’s second term, and tariffs have been an area of focus.

Since there’s a lot to keep track of, we have our trusty Tariff Tracker (table below), putting together all the tariffs that have been proposed, enacted, delayed, resolved, and studied – and when they might take effect.

So far, only the additional 10% tariff on China has taken effect (and just yesterday President Trump said a trade deal with China “is possible”). The rest are in limbo, and there’s some question whether the delayed tariffs on Canada and Mexico will be watered down or ever take effect.

Given all this uncertainty, let’s focus on what we do know.

1. Exports matter more to other countries than they do to the US

First, trade is a small part of the US economy.

In total, exports are less than 11% of US GDP, and goods exports specifically are under 7% of GDP.

But this isn’t the case for most other big economies.

Exports to the US (chart below, dark blue bars) matter more to other economies than imports from the US matter to the US economy (light blue bars).

For example, Mexican exports to the US make up over one quarter of Mexico’s GDP, but Mexican imports from the US are just 1% of US GDP. For Canada, it’s one fifth of their GDP vs. 1% of US GDP (again).

And those are the countries the US is most reliant on (the EU as a group is only slightly larger).

Since exports are such a small piece of the US economy, that limits the amount tariffs can result in higher prices and reduced demand. But, tariffs could have a bigger impact on countries more reliant on exports to the US.

2. Tariffs still matter to trade patterns

Despite the likely limited impact to US economy, tariffs still matter to trade patterns.

In 2018, during President Trump’s first term, he enacted mostly China-focused tariffs.

Since then, China’s share of U.S. goods imports has nearly halved (chart below, red line) – limiting the inflationary impact of tariffs, as companies changed their suppliers or supply chains to mitigate the added cost of importing from China.

With China’s share falling, other countries saw their shares rise, as companies opted to source goods from elsewhere. The data shows this has benefitted China’s neighbors (Taiwan, Korea, Vietnam), as well as Mexico (“nearshoring”) and the Eurozone (“friendshoring”).

The difference between President Trump’s first and second terms is that he’s proposed much broader tariffs this time around. If we end up with different levels of tariffs on different countries (e.g. 25% on Canada vs. 10% on Europe), though, then it’s likely we’ll see US imports shift to those countries with lower tariffs, to the extent possible.

Given uncertainty around tariffs, still too soon to say much about their impact

However, many economists and pundits expect that President Trump is using these tariffs as negotiation tools for eventual bilateral deals with countries. If that’s the case, the already small impact of tariffs would end up even smaller. Right now, though, given the uncertainty about the final form of tariffs, it’s hard to say much about their precise impact.

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