U.S. trade tariffs expected to harden after midterm elections

Trade policies in the United States are expected to harden after the midterm elections in November, pushing average tariffs to 21.3%. Global merchandise trade growth is forecast to slow from 4.7% in 2025 to 2.9% in 2028.

U.S. tariffs could rise to 21.3% after midterm elections

The midterm elections to be held in November in the United States mark a critical period for the future of tariffs applied to global trade. If trade wars intensify, average tariffs could rise to as much as 21.3%.

The simultaneous impact of U.S. tariffs and weak domestic demand in China is making it easier for Chinese companies to redirect their exports toward Europe and countries in the Global South. China's growing weight in global supply chains is intensifying pressure on European economies.

Europe's export market is narrowing

European countries face competition from imports arriving from China while also confronting shrinking export opportunities because of U.S. tariffs. Export losses linked to U.S. tariffs are expected to reach $74 billion in 2025 and $42 billion in 2026.

If trade tensions escalate further, the main risks include imposing new tariffs on China's excess production, opening investigations into the shipment of Chinese-origin products through third countries, and the continuation of trade tensions with Canada.

Global trade growth is expected to slow

Global merchandise trade volume is forecast to grow by 4.7% in 2025, with the growth rate declining to 4% in 2026 and 2.9% in 2027 and 2028. Demand for artificial intelligence technologies is expected to contribute 4.8 percentage points to trade growth this year.

Europe's defense spending is expected to contribute 0.2 percentage points to global trade growth, while the increase in trade volume carried over from the previous period is projected to contribute 1.4 points. By contrast, the closure of the Strait of Hormuz could reduce growth by 2.1 points, while ongoing trade wars could cause a 0.4-point decline.

Demand for artificial intelligence supports growth

Demand linked to artificial intelligence is expected to remain the strongest support for global trade growth in 2027 and 2028, although its contribution is forecast to decline to 1 percentage point. U.S. tariffs are expected to subtract 0.3 percentage points from global trade growth in 2027.

Free trade agreements signed over the past 12 months are expected to make a measurable contribution to exports from 2027 onward and support global trade growth by approximately 0.1 percentage points annually. The European Union, India, Mercosur countries, the United Arab Emirates and Australia are expected to benefit from these agreements.

Artificial intelligence affects Asia-Pacific exports

Demand for artificial intelligence technologies, together with the diversification of supply chains, is supporting exports from Asia-Pacific economies, particularly. Demand for semiconductors and inputs used in artificial intelligence technologies has driven annual export increases of 10.5% in South Korea and 30% in Taiwan.

Mexico, Vietnam and Malaysia are benefiting from the diversification of supply chains, while the United States and the Netherlands stand out among advanced economies. The Asia-Pacific economy is expected to grow by 4.4% in 2026, with approximately 25% of this increase stemming from artificial intelligence investments.

Approximately 60% of economic growth in Taiwan, South Korea, Malaysia, Thailand and Singapore is expected to be linked to artificial intelligence-related activities, largely through exports. China's economy is also expected to grow by 4.7% in 2026, 4.5% in 2027 and 4.3% in 2028.

China's production capacity increases competition

Arzu Al, a professor at Marmara University's Department of International Political Economy, said it would not be surprising if trade wars intensified after the U.S. midterm elections. Al said China's weight in the global economy matters not only to the United States but also to many countries connected to China through production capacity, technological infrastructure, the energy transition and critical raw materials security.

Al said the United States' combined use of tariffs, technology restrictions, sanctions and tax instruments should be assessed within this framework, noting that China is one of the main global production centers for electronics, batteries, solar panels and rare elements. Al said weak domestic demand and excess production had made Chinese companies more aggressive in foreign markets, increasing pressure on industrial policies through price competition.

Al said the issue for Europe was not limited to the inflow of cheap products, adding that China's economies of scale, state support, technology investments and depth in supply chains were narrowing the room for maneuver of European industry. She said China's share had reached 80% to 90% in some rare earth elements, certain stages of the solar panel supply chain and battery components, and exceeded 90% in some areas.

Al said additional customs duties, origin investigations, export controls, technology embargoes, domestic production requirements in public procurement, currency moves, sanctions restricting access to the dollar, and Iran- and Venezuela-related steps affecting energy supplies were all parts of the same competitive framework.

Source: Anadolu Ajansı

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