Donald Trump has professed his belief in the power of tariffs for decades, but he still caught investors off guard when he unveiled his “Liberation Day” tariffs in the White House Rose Garden in April 2025.
The shock of suddenly seeing the threat from industrial powerhouses like China, Vietnam and Cambodia with tariffs of 46 percent or more roiled markets, leading to a billion-dollar sell-off. To use the American president’s term: people got “yippee”.
And yet, despite economists like Kenneth Rogoff of Harvard University warning that Trump had “dropped an atomic bomb on the global trading system,” the promised Armageddon never quite materialized.
Instead, by late 2025, the Trump administration had salami-edged its way to the highest tariffs on U.S. imports since World War II — an effective tariff of more than 10 percent globally and more than 35 percent for China by early December 2025 — but without provoking an outright trade war.
Trump hasn’t always come back – despite the popular 2025 market trade called Taco, or Trump Always Chickens Out – by the FTs Robert Armstrong. Instead, the US president’s campaign to address global trade imbalances has included multiple feints and tactical withdrawals, including with China.
Even though the tariffs caused a 40 percent year-on-year drop in Chinese exports to the US in the third quarter of 2025, China’s trade surplus with the world still grew, topping $1 trillion last November.
At the same time, exports to the US from Asia’s top exporting countries also grew, according to US Census Bureau data, even as most countries in the Association of Southeast Asian Nations were subject to tariffs of around 20 percent by mid-2025. The resilience came from China’s diversion of goods through Southeast Asian allies, U.S. demand for electronic components to support the AI boom, and the continued cost advantages of manufacturing in Asia.
With no significant tariff differential between Asian producers, incentives for a radical shift in supply chains remain limited. As Ken Loo, secretary general of a Cambodian trade association for goods manufacturers, recently told the FT: “If you hit everyone equally, you don’t hit anyone.”
And while tariffs increase costs, a 20 percent tariff on $100 athletic shoes with a customs value of $25 ultimately raises the retail price of that item to $105 — painful, but not fatal.
Still, boardrooms can rest assured that rates won’t disappear.
“Tariffs are now the new sanctions, and they are here to stay,” said Maria Demertzis, head of the economics strategy center at the Conference Board think tank in Brussels, predicting more of the same in 2026 and that businesses will be able to cope with the new world of higher tariffs. “For business leaders, as long as they have a rate number, they can adapt. They may not like it, but they can plan accordingly,” she adds.
Even if global supply chains now find themselves in an uneasy balance, building resilience against geopolitical turmoil will come at a cost, said Simon Geale, executive vice president at Proxima, a supply chain consultancy owned by Bain & Co.
“Supply chains are getting longer, not shorter, and CEOs now need to think ‘risk first’ and not ‘cost first’ as they did a decade ago,” he says. “Resilience is becoming a strategic asset for many companies as we enter a world increasingly designed for disruption.”
Predicting where the disruption will come is difficult with an American president as volatile as Trump. The reciprocal tariff agreements he has signed with a large number of partners since mid-2025 are inherently unstable and lead to constant renegotiations.
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The question for 2026 is to what extent the Trump administration will make good on the threats already made.
The office of the U.S. Trade Representative has done so threatened the EU with retaliation against what it calls “harassing lawsuits, taxes, fines and directives” against US technology companies and services companies. Like EU rules on food safety, environmental regulations and the imposition of the carbon tax at the border, these are long-standing US complaints – what is unknown is how far Trump plans to push this point.
Equally long-standing are US complaints about the impact of China’s steel surpluses and China’s growing dominance in some electric vehicle markets and other key industrial sectors – as well as US demands to exclude Chinese technology from strategically sensitive supply chains.
Trump’s reciprocal tariff trade deals with countries like Cambodia, Malaysia, Vietnam and Indonesia provide potential leverage to push that agenda — including the threat of 40 percent tariffs on goods “transhipped” from China. The government has many enforcement mechanisms in place, but it is so far unclear whether it has the political will and bureaucratic bandwidth to use them.
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Amid the threat of Chinese controls on crucial raw materials, much could depend on the outcome of Trump’s state visit to Beijing in April and a subsequent visit by President Xi Jinping to the US later this year – the first of four possible meetings between the two leaders.
Finally, it is worth remembering that Trump and Xi are not the only potentially disruptive forces in global trade. The EU is also taking steps to address what French President Emmanuel Macron called the “intolerable imbalances” caused by the Chinese manufacturing giant.
Brussels is doubling its steel tariffs and pushing for a ‘Made in Europe’ campaign to prioritize industrial inputs from European countries. But as with Washington, questions remain about the EU’s true will for the fight.
