President Donald Trump’s return to the White House in 2025 kicked off a frenetic year for global trade, with waves of tariffs on America’s trading partners raising import taxes to their highest level since the Great Depression, roiling financial markets and sparking rounds of negotiations over trade and investment deals.
Their trade policies – and the global reaction to them – will remain the focus in 2026, but they will face some significant challenges.
WHAT HAPPENED IN 2025?
Trump’s measures, aimed largely at reviving a declining manufacturing base, raised the average tariff rate to nearly 17% from less than 3% at the end of 2024, according to the Yale Budget Lab, and the levies are now generating about $30 billion a month in revenue for the U.S. Treasury.
They brought world leaders to Washington seeking deals to cut rates, often in exchange for promises of billions of dollars in American investment. Framework agreements have been reached with numerous major trading partners, including the European Union, the United Kingdom, Switzerland, Japan, South Korea, Vietnam and others, but notably, a final deal with China remains pending despite multiple rounds of talks and a face-to-face meeting between Trump and Chinese leader Xi Jinping.
The EU was criticized by many for its agreement to a 15% tariff on its exports and a vague commitment to large American investments. The then French Prime Minister, François Bayrou, described it as submission and a “dark day” for the bloc. Others, shrugging their shoulders, considered it the “least bad” deal they were offered.
Since then, European exporters and economies have largely managed to adapt to the new tariff, thanks to various exemptions and their ability to find markets in other countries. French bank Société Générale estimated that the total direct impact of the tariffs was equivalent to just 0.37% of the region’s GDP.
Meanwhile, China’s trade surplus defied Trump’s tariffs and surpassed $1 trillion as it managed to diversify beyond the United States, move its manufacturing sector up the value chain, and use the influence it gained in rare earth minerals (crucial inputs to the West’s security framework) to resist pressure from the United States or Europe to curb its surplus.
What notably did not occur was the economic calamity and high inflation that legions of economists predicted would occur in the wake of Trump’s tariffs.
The U.S. economy suffered a modest contraction in the first quarter due to pressure to import goods before tariffs took effect, but it quickly recovered and continues to grow at an above-trend pace thanks to a massive boom in investment in artificial intelligence and resilient consumer spending. In fact, the International Monetary Fund raised its global growth outlook twice in the months following Trump’s “Liberation Day” tariff announcement in April, as uncertainty eased and deals were reached to reduce the originally announced rates.
And while U.S. inflation remains somewhat elevated in part because of the tariffs, economists and policymakers now expect the effects to be milder and shorter-lived than feared, and that the shared cost of import taxes will be shared along the supply chain among producers, importers, retailers and consumers.
WHAT TO LOOK FOR IN 2026 AND WHY IT IS IMPORTANT
A big unknown for 2026 is whether many of Trump’s tariffs will be allowed to remain in effect. A challenge to the novel legal premise of what he called “reciprocal” tariffs on products from individual countries and levies imposed on China, Canada and Mexico linked to the flow of fentanyl into the United States was filed in late 2025 with the U.S. Supreme Court, with a decision expected in early 2026.
The Trump administration insists it can turn to other, more established legal authorities to maintain tariffs if it loses. However, these are more cumbersome and often limited in scope, so a defeat for the administration in the Supreme Court could trigger renegotiations of agreements reached to date or usher in a new era of uncertainty over the fate of the tariffs.
Arguably equally important for Europe is what is happening with its trade relationship with China, for years a reliable destination for its exporters. The depreciation of the yuan and the gradual rise of Chinese companies in the value chain have benefited Chinese exporters. Meanwhile, European companies have struggled to continue making inroads into the slowing Chinese domestic market. One of the key questions for 2026 is whether Europe will finally use tariffs or other measures to address what some of its officials are beginning to call “imbalances” in trade relations between China and the EU.
Efforts to finally solidify an agreement between the United States and China also loom large. The precarious détente reached in this year’s talks is set to expire in the second half of 2026, and Trump and Xi are tentatively scheduled to meet twice later this year.
And finally, the free trade agreement with the United States’ two largest trading partners, Canada and Mexico, will be reviewed in 2026 amid uncertainty over whether Trump will let the pact expire or try to reformulate it more to his liking.
WHAT THE ANALYSTS SAY:
“It appears the administration is backtracking on its tougher stance on tariffs to mitigate some of the inflation and pricing issues,” Chris Iggo, chief investment officer at Core Investments and president of the AXA Investment Managers Investment Institute, said in a conference call on the outlook for 2026.
“Therefore, it worries markets less. It could be slightly beneficial for the inflation outlook if tariffs are reduced or at least not increased further.” Ahead of the midterm elections at the end of the year, “a trade war with China would not be good; a deal would be politically and economically better for the United States’ prospects,” he concluded.
With information from Reuters.
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