US Tariff Rates Rise to Highest Since 1930s

Maurice Obstfeld, Senior Fellow at the Peterson Institute for International Economics & Professor of Economics at UC Berkeley, discusses why tariffs should not be relied on as a long-term revenue tool.

Canada is importing more cars from Mexico than from the US. China has snubbed American soybean farmers at harvest time and is buying from South American growers instead. India and China are resuming direct flights between the two countries and trading rare earths, ending years of frozen relations.

The new contours of global commerce are starting to emerge as governments redraw trade alliances and companies seek other markets to avoid the highest US tariffs since the 1930s.

Smaller economies are also adapting to a world where US consumers and companies are costlier to reach. Peru is seeking buyers in Asia for its blueberries, and Lesotho, a textile producer, is pivoting to Asia, Europe and the rest of Africa. A group of 14 countries that includes New Zealand, Singapore, Switzerland and the United Arab Emirates has formed a partnership to boost trade and investment.

The global economy has defied expectations of a recession triggered by a tit-for-tat retaliation against President Donald Trump’s tariffs. Instead, America’s turn toward protectionism has demonstrated the durability of the 85% of global trade that occurs outside the US. In October, the World Trade Organization (WTO) revised its forecast for merchandise trade growth in 2025 from 0.9% to 2.4%, in large part because of the effects of so-called front-loading ahead of tariffs. The IMF’s latest World Economic Outlook, released today, noted that while this dynamic helped support trade volumes this year, it expects growth to drop to an average of 2.9% over 2025-26, rather than the 3.3% it had predicted a year ago.

“Quite clearly there are new attempts to form new alliances, to deepen existing relationships and to create new ones,” says Cecilia Malmström, the former European commissioner for trade who’s now a fellow at the Peterson Institute for International Economics.

Shipping companies, port operators and other cargo handlers have a front-row seat to the changes. In the face of US trade barriers, Chinese manufacturers are actively prospecting for alternative markets, says Christian Gonzalez, executive vice president at International Container Terminal Services Inc., a port operator in Manila whose shares are up almost 30% this year. “There is the potential for it to be very positive for us,” he says of the remapping of commerce. “Global trade will continue flowing.”

The shifts in the flow of goods around the world are more subtle than seismic for now, but they’re starting to show up in data. China’s export growth in August was the weakest in six months, with shipments to the US plunging 33%. Its exports to the 10-nation Southeast Asian trading bloc, however, rose almost 23% for the month, while those to the European Union climbed 10% and those to Africa were up 26%. These figures indicate that the world’s No. 2 economy is still on track to post a record $1.2 trillion trade surplus this year.

Clarksons Plc, a provider of data on the maritime industry, has forecast an almost 3% contraction in shipping volumes this year in the transpacific corridor, the main conduit for US-China commerce. But all other shipping lanes are seeing growth, albeit more moderate than in 2024.

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