The Winners, Losers, and Reasons for a Renewed Global Trade War
Confusion over the aims of the new US government threaten market stability during a time of heightened geopolitical uncertainty. At the centre of this issue has been Trump’s protectionist trade agenda, which has rocked international markets as the threat of a renewed trade war looms.
In the limelight is the Trump administrations use of tariffs, an attempt to coerce economic rivals, and trade partners, to agree to terms that favour US economic and foreign policy interests. So far, the result of US tariffs has been explosive: in a few short weeks the US has observed a slew of reactionary tariffs from key trade partners, such as China, Canada, and the EU, with plans for further retaliation from other nations to come.
So, who wins in a trade war? Revisiting the 2018 Trade War shows us that tit-for-tat tariffs wrought economic harm for little benefit to the US. This time around, though, the stakes are higher, as the US now gambles with recession at home and severed alliances abroad. To find winners, we might look towards economies who are building resilience to withstand pressures from global market uncertainty. Countries such as Malaysia, Vietnam and Indonesia offer promise. Particularly Malaysia, whose commitment to trade and desire to deepen cross-regional relations, even among rival powers, positions it well to weather the storm; Anwar Ibrahim, Malaysia’s Prime Minister, labels this their “strategic flexibility” (Ibrahim, 2025).
This Time is Different: Trade Disputes and Global Uncertainty
As Amiti et al. (2019) show, tariffs on USD283 billion worth of Chinese imports in 2018 ended up costing US firms and consumers USD3.2 billion in VAT tax and USD1.4 billion in monthly deadweight loss (or the loss of economic activity from the incidence of tax) by December that year, incurring considerable burden on the American people. Further, the US generated a backlash from its other trade partners by undermining the key institution in charge of global trade, the World Trade Organisation (WTO), through circumventing its dispute process. The EU, Canada, Mexico, Switzerland, India, Norway, and South Korea, to name a few, responded with levies of their own against the global superpower, leading to a full-blown tit-for-tat trade war that lay the foundations for the events we observe today.
As you can see in Figure 1, global economic policy uncertainty has risen sharply since November 2024 when Trump won the US Presidential Election. Global uncertainty is now at its second highest in the past 28 years since the inception of the GEPU index, only rivalled by the peak of the Covid-19 pandemic in May 2020. The advent of the second Trump term correlates with a new era of global instability that has diminished business sentiment, sent stocks tumbling, and raised concerns over persistent inflationary pressures from trade woes. But, is there a method to the madness? Trump’s mercurial politics may well be a plan for a power grab on the world stage engineered by his new advisor, Stephen Miran, who now chairs the Council of Economic Advisors.
Breaking Down the Rules-Based Order
Prior to joining the Trump administration, Miran (2024) wrote a paper in November last year that postulates a restructuring of global trade for the sake of restoring US industry. In his view, adjusting the trade balance, and the value of the dollar, could also help reduce the growing fiscal deficit, bringing down the burden of interest payments on US debt. This is where tariffs come in.
Taking advantage of its global superpower status, the US could, in theory, reduce the global price of imports by selectively administering tariffs. By deftly adjusting the tariff level, the US could offset inflationary pressures and restore the (commodity) terms-of-trade, meanwhile attempting to depreciate the dollar against other global currencies in a fine balancing act. In economics, this is known as the optimum tariff argument. In reality, disrupting the global trade order has so far been received poorly by US trade partners. And while this could reduce the attractiveness of dollar-denominated assets—part of the plan—it could also make it difficult for the US government to service its debt and reduce the fiscal deficit over the long-term, particularly as retaliation feeds a reciprocal tariff spiral (PS Editors, 2025).
Short Term Pain While 3rd Countries Gain
The US may end up receiving the brunt of the economic harm, at least in the short-term. The renewed trade war is estimated to add 1% to the marginal tax rate for American citizens (PS Editors, 2025). Further, the 1977 International Emergency Economic Powers Act (IEEPA), a central policy tool used by Trump to levy trade tariffs, and Section 232 tariffs on steel and aluminium (recently expanded to include other commodities like lumber and copper) costing the US 0.4% of GDP “and hours worked by 309 000 full-time equivalent jobs” (York and Durante, 2025). These figures do not account for the climb in effective tariffs from USD1 trillion of imports to USD1.4 trillion on April 2, the so-called “liberation day”, when Trump’s plan for global reciprocal tariffs take effect. This means we are yet to witness the full scale of disruption that has already placed the US biggest trade partner, Mexico, on the road to recession this year.
Navigating the disruption from Trump’s economic policies will be difficult, but not impossible. Ibrahim, the chair of the Association of South East Asian Nations (ASEAN) under Malaysia’s term, is optimistic, promoting cross-regional cooperation and a commitment to bilateral agreements on trade as a means to avoid global geopolitical turmoil (Ibrahim, 2025). Malaysia, for example, witnessed record trade in 2024, up 9.2% y-o-y to a high of RM2.88 trillion (Amin, 2025), on the back of its diversified economic strategy. Moreover, the ASEAN member observed strong inward foreign investment of USD85 billion into core manufacturing and services sectors from multiple regions, including the US, Germany, China, Singapore and Hong Kong (MIDA, 2025).
By casting a wide net to diversify trade risk, Malaysia is adapting to the shifting geopolitical landscape by building resilience through multiple supply chains—they have even joined the BRICS group in order to expand their economic links. It is not alone in this thinking, either. Thailand, Vietnam and Indonesia—Malaysia’s neighbours—share a similar perspective by focusing on cooperative trade and development as supply chains are forced to adjust to this new era of global economic uncertainty. ASEAN displays that there are relationships still being strengthened and formed outside of the tit-for-tat trade chaos, to the benefit of those countries involved. It is here where opportunity is emerging, but challenges ahead remain.
Bibliography
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PS Editors (2025) Trump’s Trade War, Project Syndicate. Available at: https://www.project-syndicate.org/onpoint/trump-s-trade-war-1.
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