The Tariff War Did Not Kill Global Trade — Here Is What Actually Happened

McKinsey's new report finds global trade grew faster than the world economy despite Trump's historic tariff increases. Here is the counterintuitive story of how trade adapted.

Almost exactly one year after Liberation Day — April 2, 2025, when Trump stood in the Rose Garden and declared reciprocal tariffs against more than 50 countries — McKinsey Global Institute's 'Geopolitics and the Geometry of Global Trade' report has delivered its verdict: the tariff war did not kill global trade. This is the counterintuitive conclusion of the most comprehensive analysis of 2025 trade data published to date, and understanding why it is true matters more than the headline.

Against US tariff rates at their highest since the Second World War, global trade grew faster than the world economy. Both US imports and Chinese exports reached all-time highs in 2025. The US goods and services trade deficit fell only 0.2 percent — from $903.5 billion to $901.5 billion — despite the administration's central stated objective of reducing deficits. The deficit with China narrowed to its smallest in over two decades, but as McKinsey author Tiago Devesa noted, 'the trend precedes the tariffs' and the gap simply migrated to Vietnam and Taiwan, where bilateral deficits hit records.

What did happen was a fundamental reshaping of trade routes and commercial relationships. Chinese goods that previously went directly to the US now go to intermediary countries — Vietnam, Mexico, India — where they are processed or assembled before reaching American consumers at prices that absorb some tariff cost but retain a competitive advantage. American companies that wanted to avoid Chinese tariffs on their inputs increasingly sourced from South Korea, Taiwan, and Southeast Asia — changing their supply chains but maintaining their cost structures.

The one clear American victory: artificial intelligence. The US provided approximately half of the world's new data-centre capacity in 2025 and predominantly drove AI-related goods demand — a dominance that tariff policy didn't create and couldn't have created, but that the general mercantilist environment has reinforced by encouraging allies to source AI infrastructure from the US rather than from China.

For Europe, whose EU-US trade framework agreement was reached in August 2025 and set a 15 percent tariff ceiling on most EU exports to the US, the adaptation has been real but manageable. The euro has appreciated significantly against the renminbi, making Chinese goods more expensive in Europe — counterintuitively helping European manufacturers who compete with Chinese imports. The redistribution of global trade continues, and its long-term economic effects will take years to fully measure.