Trade was the hot topic of 2018, with the U.S. administration engaging in negotiations with many major trading partners. Some tariffs were imposed along the way, with solar panels, washing machines, steel, aluminum and about half of Chinese imports (25% on $50bn and 10% on $200bn) all finding themselves in the crosshairs. This increased the U.S. tariff rate from 1.4% in 2017, the lowest in the world after decades of globalization, to 3.2% at the end of 2018, already higher than most developed countries [Exhibit 1]. In retaliation, trading partners like China, the EU, Mexico and Canada enacted tariffs on U.S. goods. The negative economic effects of these moves were most evident for big export economies like those of Japan, Europe, China, Taiwan and Korea, leading manufacturing activity to weaken significantly over the course of last year. This manufacturing-led weakness led to a downshift in the pace of global growth to below trend levels by the end of 2018. The U.S. economy, on the other hand, held up much better, partly due to the fiscal stimulus boost, partly due to a lower reliance on exports and partly due to the still small dollar amount of the applied tariffs.
EXHIBIT 1: U.S. tariff rates now higher than DM countries, approaching EM countries
Tariff rate, applied, weighted mean, all products
Source: IMF, U.S. ITC, World Bank, J.P. Morgan Asset Management. Historical tariff rates are 2017 figures. Data are as of May 31, 2019.