Countries around the world are grappling with an evolving trade landscape that combines protectionism with a surge in free trade negotiations, sparked by the U.S. government’s announcement of “Liberation Day” tariffs.
This new trade policy paradox reveals that nations are simultaneously safeguarding their domestic industries against the unpredictability of U.S. trade policies while pursuing free trade agreements (FTAs) with other countries.
The Global Trade and Innovation Policy Alliance (GTIPA), comprising nearly 60 think tanks from diverse regions, has published findings illustrating how nations are adapting their trade and economic strategies in response to tariffs.
Interestingly, the report indicates a dual trend of openness and protectionism, prompting a significant shift in global trade dynamics.
Countries in the Global South, particularly those involved in China’s Belt and Road Initiative such as Bangladesh, Brazil, Pakistan, and South Africa, are increasingly gravitating towards Chinese investment, which facilitates these changes.
Many U.S. allies are also reconsidering their trade relationships, opting to negotiate directly with China to secure beneficial trade deals while wary of potential U.S. tariffs on Chinese goods flooding their markets.
In light of the current trade environment, policymakers generally prefer engaging in negotiations with the United States over imposing retaliatory tariffs.
However, there is a marked movement among several countries to minimize their reliance on U.S. markets by diversifying their trade partnerships.
For instance, the Australian government has initiated extensive policies aimed at enhancing domestic manufacturing, diversifying supply chains, and amassing strategic reserves of crucial minerals.
Simultaneously, Australia is enhancing its trade engagements with members of the Association of Southeast Asian Nations (ASEAN), the European Union (EU), India, and the UK.
Canada is moving forward with expanding the capacity of its West Coast pipelines, enabling oil exporters to bypass the U.S. market entirely.
On the other side of the Atlantic, Germany is urging Brussels to finalize the protracted agreement between the EU and Mercosur, while also pushing for relaxed requirements in trade talks with India and Indonesia.
Mexico is capitalizing on its membership in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) alongside updating agreements with the EU to enhance market access beyond North America.
This prevailing trend of free trade protectionism is also emerging in countries that often receive less attention from Washington.
Brazil, a key member of BRICS, has revitalized its “neo-industrialization” agenda, linking new tax credits to local-content requirements in sectors such as automotive, agriculture, and telecommunications.
Brazil is also keen on expediting the EU-Mercosur agreement while exploring trade discussions with Canada.
Similarly, North Macedonia is providing zero-interest loans for its textile and wine sectors, leveraging regional initiatives such as the Central European Free Trade Agreement (CEFTA) and the Berlin Process to bolster intra-regional trade.
Pakistan is taking an aggressive stance by embracing an import substitution approach coupled with offering tariff-rebate schemes to firms that commit to local sourcing, while actively courting partners in ASEAN, Central Asia, China, and the Middle East for enhanced regional integration.
Given the significance of the United States in the global trading system, the ramifications of President Donald Trump’s trade policies are predicted to have widespread and cascading impacts.
The imposition of U.S. tariffs is resulting in targeted protectionist measures, prompting nations to withdraw from American markets and seek alternative trading partners.
This evolving model—characterized by free trade among allies and protectionism towards the United States—may signal a shift toward a new global trade order marked by fragmented alliances, bypassed U.S. markets, and a sidelined World Trade Organization.
image source from：itif
