How will shifts in US trade policy disrupt relations with US global trading partners?  

The new US administration has signaled that tariffs will be an important part of their policy toolkit. While the exact specifics of these tariffs remain cloudy, the chance of them in some form is high, including a possible universal tariff hike across all trading partners. Tariffs act by raising the price of imports, dampening consumer demand for foreign goods among other effects. This would ripple through economies, with implications for growth, inflation, monetary policy and exchange rates. The more a country relies on trade with the US, the more sensitive its economy would be to swings in US trade policy. Using data from the US Census Bureau and International Monetary Fund, we look at the world’s 50 largest economies and assess who faces the greatest risks from a potential universal tariff imposed by the US on its trading partners.

At the top of the most vulnerable list are Mexico and Canada. Many industries, jobs and investments are oriented around trade between the United States-Mexico-Canada Agreement (USMCA, formerly NAFTA) members and tariffs would present challenges for the free trade agreement, which is up for review in 2026. Trade flowing between Mexico and the US accounts for approximately 45% of Mexico’s GDP, with $475 billion of goods exported to the US in 2023, which totals 75% share of its total exports. In Canada, trade with the US represents 36% of its GDP and $419 billion of goods. From automobiles and televisions to agricultural products and energy, supply chains for many products that reach the US consumer market cross between the three countries.

Next up is Vietnam, where vulnerability has been intensified in recent years by Chinese producers shifting into the southeast Asian country as a way of getting around existing tariffs put in place on China during the first Trump administration and more recently under President Biden’s term.

Smaller tech-dependent economies like Ireland, Taiwan and Malaysia would be deeply impacted. Important manufacturing hubs like Japan and South Korea also heavily rely on trade with the US and around the Pacific Rim.

Germany, the manufacturing engine of Europe, and its northern and central neighbors are also at risk. The German manufacturing sector has been struggling recently given headwinds of higher regional energy prices and slowing growth in China.

China stands out as facing the harshest tariff rate hike and has been in the US’ crosshairs since tariffs were first imposed in 2018 during the first Trump administration due to alleged unfair trade practices, security concerns and intellectual property theft. While China still sends a massive volume of exports to the US, it has diversified its trade away from the US and deepened trading relationships throughout emerging markets that are hungry for its products. US goods imports from China declined to $427 billion in 2023 from a $538 billion peak in 2018 when Trump’s initial tariffs were just going into effect. With the increasing rate of tariffs, the size of that trading relationship should continue to shrink.

A trade war will likely not stop after the opening US salvo and further escalation is a downside risk to global growth. Countries affected will likely retaliate with tariffs of their own and possible export restrictions of key products. Central banks may need to boost monetary policy support to offset the negative shock to aggregate demand, especially in the most exposed countries. Shifting interest rate differentials between countries will have implications for exchange rates.

Follow along with us this year as we provide updates on this key theme as it plays out across the global economy.