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Investing.com -- A new analysis from Capital Economics suggests that tariffs under a second Trump administration could reduce global real goods trade by approximately 1% over the next two years.
The economic research firm projects that Trump’s tariffs will likely settle at around 10% for most countries and 40% for China, representing an 11 percentage point increase in effective U.S. tariff rates.
This tariff scenario could reduce global GDP by about 0.3% by the end of 2026, according to the report.
The impact would come through both demand and supply channels, with tariffs potentially acting as a consumption tax and creating uncertainty while also making foreign goods less appealing compared to domestic alternatives.
Despite these headwinds, Capital Economics does not foresee a period of significant "deglobalization." The firm expects goods trade as a share of global GDP to remain around 45%, with only a slight decline of a few tenths of a percentage point.
The analysis suggests global goods trade growth may slow from 2.4% in 2024 to 2.2% in 2025 and further to 1.0% in 2026.
Several factors could mitigate the impact of U.S. tariffs on global trade flows.
The report anticipates limited retaliation from other countries and no broader protectionist shift among nations not directly involved with the U.S. This is significant since 87% of global trade does not directly involve the United States.
The report also predicts substantial trade rerouting, similar to what occurred during Trump’s first term.
U.S. real goods imports from China could fall by approximately 45% over two years, but Chinese exporters would likely redirect their products to other markets.
Meanwhile, U.S. imports from other Asian economies, including India, may increase as trade patterns adjust.
Capital Economics concludes that while tariffs will create meaningful friction in the trading system over the next couple of years, they are unlikely to reverse the structural plateau in globalization that has persisted since the Global Financial Crisis.
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