What do tariffs mean for global trade?

We think Trump’s tariffs will cause real goods trade to fall by around 1% in the next two years, both by introducing frictions into the trading system and by causing global demand to weaken. But a lot of the fall in US imports from China will be offset by a rise in imports from elsewhere, while China’s exports will be redirected to other economies. So we think a reasonable base case is for goods trade as a share of GDP to remain around 45%. While this would represent a meaningful change from the decades leading up to the Global Financial Crisis – when trade as a share of GDP increased sharply – it would take a significant retaliation or a much broader protectionist shift to prompt a period of “deglobalisation”.