Concerns about energy prices

US tariffs will change global trade

US President-elect Donald Trump is likely to cause quite a stir.

(Bild: ASSOCIATED PRESS)

Geopolitical tensions as well as concerns about energy prices will have a massive impact on global trade.

The planned increase in US tariffs to 60 percent for goods from China, 25 percent for Canada and Mexico and 20 percent for other countries will accelerate the changes in global trade flows towards the ASEAN countries and the Global South, according to the Global Trade Report by the Boston Consulting Group (BCG).

The tariffs would have the greatest impact on cars and car parts as well as consumer electronics in the USA. According to the report, the tariffs on Chinese imports will increase the price of consumer electronics by 61 billion dollars. However, trade relations between the USA, Canada and Mexico have also contributed significantly to North American economic growth in recent years and could suffer from the tariffs.

It is also predicted that the increase in tariffs will make US imports from the most important trading markets 640 billion dollars (621 billion euros) more expensive. Without these tariff increases, global trade would grow by an average of 2.9 percent annually over the next eight years. However, the trade routes will change as a result of the tariffs. This is because China is already expanding trade relations with the increasingly important South.

A cap with Trump's slogan "America First" (America first)

(Bild: APA/AFP)

Global trade will rise to 29 trillion dollars
"Global trade will reach 29 trillion dollars by 2033 (at 2010 prices, note), but the routes on which these goods are transported are changing at a remarkable pace," explained Aparna Bharadwaj, Managing Director and Partner at BCG and Head of Global Advantage. "Trade routes have already moved away from historical patterns and the threat of US tariffs will accelerate this."

Tarnished trade relations with China
Without new US tariffs on Mexican goods, annual trade between the US and Mexico could increase by 315 billion dollars by 2033, according to BCG. This would correspond to an annual growth rate (CAGR) of four percent. Trade between the USA and Canada will increase by 147 billion dollars, as companies supplying North American markets shift a larger part of their supply chains to the region.

Western efforts to reduce dependence on China will have a negative impact on trade relations: BCG expects China's annual trade with the West to decline by USD 221 billion, or 1.2 percent annually, by 2033. The decline in annual trade between the USA and China of 159 billion dollars could be even greater if the USA significantly raises tariffs on Chinese goods. In an extreme case, trade could even collapse by around a quarter. And the cost of imported Chinese goods would rise by more than 200 billion dollars if no alternative sources are available and import volumes remain constant.

In line with his "America First" policy, Trump is increasing tariffs against his neighboring countries - experts expect this to increase the price of goods.

(Bild: APA/Associated Press)

New trading partners
However, China has already found new trading partners in the Global South - a group of 133 developing countries: It represents around 18 percent of global GDP, but 62 percent of the world's population. These countries also account for around 30 percent of global trade. China's trade with the global South will increase by an average of 5.9% to 1.25 trillion dollars by 2033. However, China has already recorded higher annual growth rates of 7.5 percent. In the study, BCG assumes that China's overall trade growth will be limited to 2.7 percent annually over the next ten years.

On the other hand, trade between the countries of the global South will increase by 673 billion dollars over the next ten years. The annual growth rate will rise from 2.8 to 3.8 percent, predicts BCG. In addition, trade between the South and the North will increase by an average of 3.7 percent annually to 1.67 trillion dollars in 2033.

Total EU trade will increase by two percent annually until 2033. Although trade with China will tend to stagnate, it will pick up speed with Africa and India. And trade with Russia is expected to fall by around 106 billion dollars by 2033, as the EU will continue to reduce its imports of Russian energy and enforce economic sanctions. The fact that trade with the USA will increase to 303 billion dollars over the next ten years is due not least to liquefied natural gas imports from the USA.

ASEAN states benefit
The Southeast Asian states (ASEAN) are among the beneficiaries of the change in trade relations. Total trade between these countries will grow by 3.7 percent annually, while trade with China is likely to increase by 5.6 percent annually to 558 billion dollars in 2033. Trade with the EU and the USA, on the other hand, will decrease.

India will be one of the big winners in the global South: according to the study, the total trade of the most populous country will increase by 6.4% annually to 1.8 trillion dollars by 2033. India is benefiting from its increasing popularity as a production location for companies that want to diversify their supply chains away from China. High government incentives for manufacturing, a huge labor supply at low cost and a rapidly improving infrastructure are further advantages of this location.