Tariffs in 2025-2026: How Trade Policy is Reshaping Global Supply Chains

President Trump's second-term trade policy has implemented the most significant tariff increases since the Smoot-Hawley era, fundamentally reshaping global commerce. The average effective tariff rate on all imports has risen to 10.1%—the highest since 1946—representing a tax increase of 0.55% of GDP for 2026, the largest since 1993.

The Tariff Framework

The administration deployed tariffs through multiple authorities: Section 232 tariffs target steel, aluminum, automobiles, semiconductors, robotics, and pharmaceuticals. IEEPA (International Economic Emergency Powers Act) tariffs—used for the first time to impose duties—address fentanyl flows from China, Canada, and Mexico.

The U.S. Supreme Court heard oral arguments in November 2025 on the legality of IEEPA tariffs. J.P. Morgan estimates IEEPA measures account for roughly 61% of the year-to-date tariff increase, or about $180 billion annualized.

U.S.-China Trade Dynamics

Trade between the United States and China contracted sharply in 2025, with U.S. imports from China falling 28% year over year while exports to China declined 38%. Following months of escalation that saw rates reach 125% in April, President Trump and President Xi agreed to a 90-day reduction in May 2025.

Despite the truce, China achieved a record trade surplus exceeding $1 trillion in 2025, reflecting strengthened commercial ties beyond the U.S.

Supply Chain Restructuring

Southeast Asian economies have emerged as major beneficiaries: Indonesia posted 34% growth in U.S. imports, Thailand recorded 28% increases. The administration's 40% transshipment tariff now targets goods rerouted through Vietnam, Malaysia, and Mexico to evade duties.

Country-specific tariffs: Vietnam faces 46% (reducing to 20%), Cambodia 49%, Thailand 36%. The de minimis exemption for packages under $800 was suspended effective August 29, 2025.