President Trump's tariffs could trigger huge shift in global trade

In anticipation of the Trump administration's proposed tariffs on Mexico, Canada, and China, markets fell slightly on Monday. Now on pause for a month, the potential follow-through of US tariffs on Canada, Mexico, and China could trigger a major shift in global trade flows, according to research from Boston Consulting Group.
This shift in trade flows could see China pivot to the Global South and could kill the North American trade bloc, created after years of nearshoring brought US, Mexican, and Canadian industries closer together.
US President Donald Trump announced a 10% tariffs on all imports from China and a 25% tariff on imports from Canada and Mexico. Some of those imports include oil and lumber from Canada; clothing, auto parts, and food from Mexico; plastics, textiles, and computer chips from China.
The European Union, another one of the United States’ largest trading partners, is very likely the next in line to be hit with new tariffs. This could exacerbate the current trade chaos and continue to rattle stock markets.
The Global South stands to gain
The growing power of Global South nations has already been reshaping global trade. These 133 developing countries, representing 62% of the world’s population but only 18% of global GDP, are forming new alliances that circumvent traditional Western influence.
This shift towards a multipolar system means they are less reliant on US and EU markets. That is exemplified by trade blocs like BRICS+, the African Continental Free Trade Area, Mercosur, the Pacific Alliance, and ASEAN. China’s Belt and Road Initiative has also further fueled this trend.
One unintended consequence of the Trump administration’s tariffs could be a consolidation of this trend towards multipolarity. While it is not totally clear who will stand to gain from this in the long-run, it is not likely to be US-based industry.
“The Global South is increasing its trade power. China is set to increase trade with Global South by $1.25 trillion, annual trade among Global South nations to grow by $673 billion,” according to Boston Consulting Group.
Navigating a changing world
As for businesses in the US, strategies will need to be quickly adjusted in order to avert crisis. That will need to include developing more resilience in supply chains. It would also be wise for companies to invest in advanced tools, like systems that monitor supply chain shocks in real time.
Organizations should find other ways they can strengthen decision-making processes in order to better respond to the changing geopolitical landscape. That may include investing in tools for advanced analysis.
Nearshoring – consolidating supply chains to be mainly within the US – is another obvious solution, though difficult to attain. This is, after all, the aim of the Trump administration. This strategy of bringing production closer to home is worth the trouble for companies that are able to manage it, however, because it both reduces carbon footprints and mitigates supply chain risks.
Besides that, companies should be looking at expanding their presence to growth markets, like those in the Global South, many of which offer great growth opportunities.
“For business leaders, being ahead of the curve has never been more critical,” said Marc Gilbert, managing director and senior partner at Boston Consulting Group and global leader of the firm’s Center for Geopolitics.
“Continuing to develop agile supply chains and, most critically, making sure they have the ability to sense and react to geopolitical shifts will all be necessary skills to operate in this new, fast-moving and high-stakes reality.”
The US tariffs have triggered retaliatory responses from Canada, Mexico, and China. For example, Canada was quick to announce a matching 25% tariff on all US goods imported into Canada, with Prime Minister Justin Trudeau saying Canadians should “choose Canadian products.”
If tariffs continue to be issued back and forth, it could spiral out of control and end up being a full-on trade war. Yale University’s Budget Lab estimated that the new US tariffs could cost the average American family $1,000 to $1,200 in annual purchasing power – and that does not include the effect of retaliatory tariffs.
Trump has acknowledged that the tariffs are likely to cause some pain to consumers, though has downplayed it, pointing to the long-term good tariffs could bring.
“Will there be some pain? Yes, maybe (and maybe not),” Trump wrote on social media. “But we will make America great again, and it will all be worth the price that must be paid.”