Convera: Trump Tariffs Reshape Global Trade
The implementation of new tariffs by the Trump administration has sparked a global trade confrontation with significant implications for currency markets and economic growth, according to a comprehensive analysis from Convera, a cross-border payments provider.
The tit-for-tat trade war is now in full swing after the US swiftly enacted new tariffs, raising duties on most Canadian and Mexican imports to 25% while doubling the existing levy on Chinese goods to 20%.
International response was immediate, with Canada announcing a phased tariff plan targeting approximately US$100bn worth of US goods, Mexico expected to follow suit, and China imposing tariffs of up to 15% on select US products.
The escalation has rattled markets, with investors on Polymarket adjusting their outlook for the US economy.
The probability of the US experiencing two consecutive quarters of economic contraction this year—the technical definition of a recession—has jumped from 23% at the end of February to 40% on March 12.
Fixed-income markets reflect this shifting sentiment, with expectations for Federal Reserve rate cuts surging. Markets now fully price in three rate cuts for the year, according to Bloomberg data cited in the report.
Global trade tensions and US dominance
The Convera analysis emphasises two concurrent dynamics reshaping global commerce: increasing trade fragmentation and continued US import dominance.
While global trade volumes remain near record highs, geopolitical tensions and nationalist policies are transforming supply chains.
Companies now balance profit considerations with political factors, leading to trends such as “friend-shoring”—the practice of relocating production to countries considered political allies.
“The era of straightforward, global trade is being replaced by uncertainty,” the report notes, highlighting reduced foreign direct investment between distant countries as evidence of this shift.
Simultaneously, the US has expanded its role as the world's leading importer, purchasing goods and services worth approximately US$365bn in February alone.
This represents about 10% of global import volumes, with many countries heavily dependent on American demand.
The report points out that approximately 80% of Canadian and Mexican exports are destined for the US, while this figure stands at roughly 20% for Japan, South Korea and India.
Currency implications and market uncertainty
The trade tensions are creating significant volatility in currency markets, with the US dollar caught between opposing forces.
Tariffs provide short-term support for the dollar, while weakening macroeconomic data exerts downward pressure.
The dollar index rose 6% to two-year peaks following Donald Trump's November election victory, driven by risk sentiment and expectations of continued US economic outperformance.
However, this narrative is unravelling due to tariff confusion and lower growth projections.
“Trump trades are starting to unravel, and the tariff risk premium is fading as the focus shifts from the inflation implications of policy and onto the growth risks,” the report states.
The Japanese yen has emerged as the primary beneficiary of the trade tensions, while the Mexican peso has been hit hardest, trading nearly 14% higher against the dollar than its two-year average.
The analysis presents currency scenarios for major pairs, including GBP/USD, EUR/USD, AUD/USD, and USD/CAD, with baseline forecasts adjusted to account for tariff implementation.
For the Euro, Convera now assumes the US will impose tariffs on European imports over the coming months, though the timing remains uncertain.
China's industrial strategy
China continues to strengthen its manufacturing position despite ongoing trade tensions.
Following the pandemic, China produced more manufactured goods than the next nine largest countries combined, as policymakers prioritised industrial output over earlier promises to reorient toward domestic consumption.
This strategy has yielded results, with China becoming the world's largest car exporter, overtaking both Germany and Japan.
The country closed 2024 with a record trade surplus while simultaneously reducing its dependency on the US market. The American share of Chinese exports has fallen from approximately 23% at the beginning of the century to 16% today, as China diversifies toward markets in Africa, Latin America and Oceania.
The report concludes that policy uncertainty will remain elevated under the current administration, with global markets struggling to price in binary risks such as tariff implementation.
This uncertainty, combined with inflation concerns, complicates central bank decision-making and will likely maintain volatility in currency markets throughout the year.
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