By pulling the tariff trigger on friends and foes alike, Washington sent shockwaves through capitals the last couple of months. Allied leaders have responded with alarm and dismay. Germany’s Chancellor Olaf Scholz bluntly warned “the US has chosen a path at whose end lie only losers, since tariffs and isolation hurt prosperity for everyone.” Such rhetoric underscores the breach these tariffs have opened with Europe, potentially weakening the Western unity forged in recent decades.
Washington is effectively telling partners that grievances will be settled by power, not rules. This “might makes right” approach is forcing traditional US allies to rethink their reliance on America. We may see closer trade cooperation among the EU, Japan, India and others as they seek strength in numbers against US pressure. Trump’s tactics could drive US allies toward independent trade pacts – or even tentative partnerships with China – to insulate themselves from American unpredictability.
Strategically, Trump’s policies risk splintering the united front the US might need on other geopolitical issues. Tensions over trade will spill into defense and diplomacy. For example, frictions with Europe and Asia come just as the US is urging these same allies to support its stance on issues like tech security and Indo-Pacific strategy. By weaponising interdependence against allies, Washington may find fewer takers for future cooperation. In short, the tariffs have injected new volatility into US alliances, tilting the geopolitical balance in ways that could outlast the tariffs themselves.
US-China showdown: from engagement to estrangement
At the eye of the storm is the US-China relationship, now arguably at its lowest point in decades. From a strategic lens, the US is clearly aiming to force a decoupling of the world’s two largest economies. Washington’s message: China’s rise via “unfair” trade practices will no longer be tolerated, and US supply chains must disengage from China’s orbit. This aligns with other US moves to contain China – such as sweeping export controls on advanced semiconductors and efforts to block Chinese access to critical US technology. Taken together, tariffs and tech restrictions form a one-two punch that seeks to rewrite the terms of engagement with Beijing. The strategy has been described as economic containment and China will not yield without a fight.
Chinese officials blasted US tariffs as undermining the multilateral trade system. Beyond rhetoric, China is preparing retaliation. Retaliatory tariffs on US exports are just one of the weapons in the Beijing arsenal. China also holds other levers: restricting exports of critical materials (rare earth minerals and other critical resources essential to US tech and defense), stepping up regulatory pressure on American firms in China and allowing the yuan to weaken to offset tariff costs.
Beijing could even consider (further) unloading US Treasuries or coordinating with other nations to build alternative trade and finance architectures outside US influence (it has already taken steps in that direction).
For multinational companies, the splitting of the US-China nexus means tough choices ahead. Many Western firms had already begun “China +1” strategies (diversifying some production to South-East Asia or Mexico) during the past trade war; now those contingencies will accelerate.
The broader US-China relationship will likely take on an even more adversarial tenor beyond trade. Trust is at a nadir. Any hopes of reviving the defunct “Phase 1” trade deal or negotiating new market access have probably evaporated. Instead, both nations are bracing for a long-term standoff. The trade war reinforces a narrative in Beijing that the US will do anything to impede China’s development, which could strengthen nationalist resolve within China to double down on self-sufficiency (eg the “dual circulation” strategy – that faces obstacles of its own – to boost domestic demand and tech independence).
Geopolitically, a fully antagonistic economic relationship could spill into other arenas – from competition for influence in emerging markets to military posturing in East Asia – as economic interdependence no longer acts as a buffer against conflict.
In sum, these new tariffs could mark a decisive break from engagement to estrangement between the world’s two largest economies.
The new era of deglobalisation
Clearly, Trump’s actions are not happening in a vacuum – they are both a symptom and accelerator of a larger deglobalisation trend. Trump’s trade gambit signals that the era of ever-freer trade flows, which defined the late 20th century, has given way to a new era of economic nationalism. The administration explicitly framed these tariffs as correcting decades of naive globalisation. “Our country has been looted and plundered by other nations,” Trump thundered, vowing that “it is not going to happen anymore.”
This populist narrative – that the US opened its markets too widely and must now reclaim sovereignty – resonates with many American voters who feel left behind by offshoring and imports. It also dovetails with Trump’s domestic political agenda: tariffs are presented as a way to bring back manufacturing jobs and as leverage to force trading partners into “fair” deals, all while raising revenue to offset his promised tax cuts. On a global scale, Trump’s sweeping duties reverse decades of trade liberalisation that have shaped the global order. Since World War II, the US led in building institutions like GATT/WTO to reduce tariffs and foster interdependence as a pillar of peace and prosperity. Now, the US itself is actively dismantling that system erecting new barriers around the world’s largest consumer economy.
This protectionist turn by the US is emboldening similar sentiments elsewhere. We are effectively seeing a paradigm shift from globalism to bilateralism (or even unilateralism). Deals and alliances may increasingly hinge on “reciprocity” as narrowly defined by each nation’s perceived self-interest, rather than on mutual benefits of integration.
The immediate fallout of Trump’s tariffs will likely be an upsurge in initiatives pushing deglobalisation into a self-reinforcing cycle. As each country defends its interests, the risk is a cascading tit-for-tat dynamic reminiscent of the 1930s Smoot-Hawley era, when beggar-thy-neighbor tariffs deepened the Depression.
Crucially, the traditional mechanisms to prevent trade spats from escalating – namely the WTO’s dispute system – have been marginalised. Not only has the US paralysed the WTO’s appellate body in recent years, but it’s now withdrawing support altogether. This leaves countries with little choice but to retaliate directly or seek ad-hoc negotiations. We could witness the formation of new trading blocs as countries band together for leverage. For example, the EU and India might accelerate their FTA talks, or Asia Pacific nations may strengthen the Regional Comprehensive Economic Partnership. Meanwhile, global supply lines will rewire along geopolitical fault lines: a US-centered bloc (North America and maybe some allies that strike deals to escape tariffs) versus a China-centered bloc, with others jockeying in between.
Deglobalisation also carries a narrative beyond pure economics – it fits into domestic political trends across many nations. In the US, the tariff push aligns with an “America First” ethos that rebukes multilateralism. In Europe, it may bolster factions that advocate “strategic autonomy” apart from the US In developing countries, US protectionism could fuel skepticism about Western-led globalisation, prompting them to diversify partnerships (for instance, more South-South trade).
Politically, a more fractured global trade environment is both a consequence and a cause of shifting power dynamics. Nations are asserting sovereignty in economic policy even at the cost of efficiency. For multinational businesses and investors, this means the rules of the game are changing: market access can no longer be taken for granted, and the political risk of supply chains has never been higher.
