Trump shook up global trade this year; some uncertainty may persist into 2026

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 taxes on imports 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 continue to be protagonists in 2026, but they will face some important challenges.

Trump's measures, broadly aimed 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 taxes are now generating about $30 billion a month in revenue for the U.S. Treasury.

They brought world leaders to Washington seeking deals for lower rates, often in exchange for promises of billions of dollars in American investment. Framework agreements have been struck with a number of 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 on the backlog 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 impose a 15% tariff on its exports and a vague commitment to large American investments. Then-French Prime Minister Francois Bayrou called it an act of submission and a “dark day” for the bloc. Others shrugged and said it was the “least bad” deal on offer.

Since then, European exporters and economies have generally coped with the new tariff rate, thanks to various exemptions and their ability to find markets elsewhere. French bank Societe Generale 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 outside the United States, move its manufacturing sector up the value chain and use the influence it had gained in rare earth minerals – crucial inputs to the West's security framework – to counter pressure from the United States or Europe to “reduce its surplus.”

What notably did not happen was the economic calamity and high inflation that legions of economists predicted would result from Trump's tariffs.

The U.S. economy suffered a modest contraction in the first quarter amid a scramble to import goods before tariffs took effect, but it quickly recovered and continues to grow at an above-trend pace thanks to a huge 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 announcement of the “Liberation Day” tariffs 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 short-lived than feared, with the costs of import taxes being shared along the supply chain among producers, importers, retailers and consumers.

A big unknown for 2026 is whether many of Trump's tariffs will be allowed to remain in place. A challenge to the novel legal premise of what it called “reciprocal” tariffs on goods 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. But they are more cumbersome and often limited in scope, so a loss for the administration in the high court could trigger renegotiations of agreements reached so far or usher in a new era of uncertainty about where the tariffs will end up.

Arguably just as 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 move up the value chain of Chinese companies have helped Chinese exporters.

Meanwhile, European companies have struggled to make further inroads into the slowing Chinese domestic market. One of the key questions for 2026 is whether Europe finally uses tariffs or other measures to address what some of its officials are starting to call the “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 shaky 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 restructure it more to his liking.

“It appears the administration is backing off from 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 2026 outlook conference call.

“So it's less of a concern for markets. It could be marginally helpful for the inflation outlook if tariffs are reduced or at least not raised further.” Ahead of this year's midterm elections, “a confrontational trade war with China wouldn't be a big deal; a deal would be politically and economically better for America's prospects,” he said.