US Tariffs Set to Accelerate Landmark Shifts in Global Trade Flows

• New analysis by Boston Consulting Group estimates that a 60% tariff on Chinese goods, a 25% tariff on Canada and Mexico, and 20% tariff on imports from other countries could add $640 billion to the cost of US imports from its top trading partners, based on 2023 US import levels
• Consumer electronics, electrical machinery, and fashion goods would be most affected by higher tariffs on Chinese goods. BCG estimates that a 60% tariff rate would add $61 billion to cost of importing consumer electronics products from China into the US
• The potentially dramatic impact of US tariffs would happen as the Global South is increasing its trade power. China is set to increase trade with Global South by $1.25 trillion, annual trade among Global South nations to grow by $673 billion.

BOSTON, Jan. 13, 2025 -- Geopolitical rivalries, alliances, and aspirations are rewiring the global economy—and will continue to do so in the years ahead, accelerated by the imposition of tariffs by the US on foreign imports. Without a broad increase in tariffs, world trade in goods will keep growing at an average of 2.9% annually for the next eight years, but the routes goods travel will change markedly as North America reduces its dependence on China and China builds up its links with the Global South, which is cementing its power in the global trade map.¹

These are among the findings of Boston Consulting Group's Center for Geopolitics latest report, Great Powers, Geopolitics, and the Future of Trade, published today.

"Global trade is set to top $29 trillion by 2033, but the routes these goods will travel is changing at a remarkable pace," said Aparna Bharadwaj, managing director and partner at BCG, global leader of the Global Advantage practice. "Trade lanes were already shifting from historical patterns and looming US tariffs will accelerate this. Navigating these new dynamics will be critical for any global business."

The report looks in detail at the regions and the sectors that would be most affected by the imposition of tariffs by the US:

• BCG modeled the direct impact of the 60/25/20 scenario (60% tariff on Chinese goods, a 25% on goods from Canada and Mexico, and a 20% on imports from all other countries). We estimate that the tariffs would add $640 billion to the cost of importing goods from the top ten US import nations, based on 2023 levels, unless alternative sources or suppliers are found.
• In terms of product categories imported by the US, the greatest impact would be on imported auto parts and automotive vehicles, which would primarily affect trade with Mexico, the EU, and Japan. Consumer electronics, electrical machinery, and fashion goods would be most affected by higher tariffs on Chinese goods. We estimate that a 60% tariff rate would add $61 billion to cost of importing consumer electronics products from China into the US.

"The world trading system is too volatile for firms to rely on likelihood alone," said Michael McAdoo, BCG partner and director of global trade and investment. "Scenario thinking, and flexible action plans will help firms protect themselves against potential downsides and seize new opportunities."

Among the other key findings of the report:

• North America is solidifying into a resilient trade bloc—but tariffs and USMCA could shape the future:
  • The trade relationship between the US, Mexico, and Canada, bolstered by years of reshoring, nearshoring, and friendshoring aimed at easing reliance on Chinese imports, is contributing to North American economic growth.
  • If new US tariffs on Mexican goods can be avoided, we project that annual trade between the US and Mexico will increase by $315 billion by 2033—representing a compounded annual growth rate (CAGR) of 4%; US-Canada trade will grow by $147 billion as companies serving North American markets shift more of their supply chains to the region.
• China pivots toward the Global South:
  • As China's trade with the US and EU slows, it is growing strongly with much of the rest of world. We project that annual two-way trade with the West will contract by $221 billion by 2033—representing an average annual decline of 1.2%.
  • The $159 billion decline in annual US-China trade could be sharper if the US significantly raises tariffs on Chinese goods. Under the most extreme scenario, we estimate that would further reduce annual US-China trade by around one-fourth. The cost of imported Chinese goods would increase by more than $200 billion if no alternative sources are available and if import volumes remain constant. 
  • We project that China's trade with the Global South, by contrast, will surge by $1.25 trillion, or CAGR of 5.9% by 2033. This shift will support China's geopolitical agenda of reducing its economic reliance on the West while deepening ties with major emerging markets.
  • We project that China's total trade growth will be limited to 2.7% annually over the next decade, well below the current GDP growth estimate of 3.8%. That is also slower than 4% annual growth in trade that China enjoyed from 2017 through 2022.
• The Global South Is Set to Gain Power:
  • One of the more intriguing—and the least heralded--developments in global trade is the growing power of Global South nations. This group of 133 of developing nations represents around 18% of global GDP, but 62% of the world's population. It also accounts for around 30% of global trade. We anticipate several major shifts in Global South trade over the coming decade.
  • Although trade with China will continue to grow robustly, the pace will slow to 5.9% CAGR compared to 7.5% over the past five years as indigenous manufacturing processes mature.
  • Annual trade among Global South nations themselves, by contrast, will expand by $673 billion over the next decade with its CAGR accelerating to 3.8%, compared with 2.8% from 2017 to 2022. Trade between the South and the North will also accelerate, to 3.7% CAGR from 2.3% over the previous five years, reaching $1.67 trillion annually in 2033. 
• The EU's Focus on Competitiveness:
  • Geopolitical tensions, energy security concerns, and regulatory challenges have spurred the 27-nation EU to reassess traditional trade relationships. Bilateral trade with China is expected to stagnate over the next decade. Trade with Russia is expected to decline by around $106 billion by 2033 as the EU continues to reduce imports of Russian energy and enforces economic sanctions.
  • We project that total EU trade will continue to grow by 2% annually through 2033. Annual trade with the US will grow by $303 billion over the coming decade, largely driven by EU imports of US LNG, and accelerate with India and Africa.
  • Companies should also monitor European initiatives to boost their global competitiveness in strategic sectors.
• ASEAN Is a Winner from Trade Reshuffle:
  • The region has been among the greatest beneficiaries of production shifts spurred by geopolitics, such as trade tensions between the US and China. Combined trade of the ASEAN nations is projected to grow 3.7% annually over the next decade as the region's manufacturing capabilities improve and their share of industrial value chains deepen.
  • ASEAN's trade relationship with China is expected to continue to grow 5.6% annually, to $558 billion in 2033, while trade with both the EU and the US is set to moderate.
• India Powers Ahead: 
  • India is emerging as the other big Global South trade story as it pursues favorable relations with most of the world's major economies. We project 6.4% CAGR in India's total trade through 2033, to $1.8 trillion annually, roughly in line with its high GDP growth. Among the drivers will be India's growing popularity as a production base for companies seeking to diversify supply chains concentrated in China, hefty government incentives for manufacturing, a huge low-cost workforce, and rapidly improving infrastructure.

"For business leaders, being ahead of the curve has never been more critical," said Marc Gilbert, a managing director and senior partner at BCG and global leader of the firm's Center for Geopolitics. "Continuing to develop agile supply chains and, most critically, making sure they have the ability to sense and react to geopolitical shifts will all be necessary skills to operate in this new, fast-moving and high-stakes reality."

Download the publication here:
https://www.bcg.com/publications/2025/great-powers-geopolitics-global-trade

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