Navigating the Tariff Crossroads: Can Trade Ties Truly Strengthen by 2025?
36min read In a climate of escalating trade tensions, U.S. Treasury Secretary Scott Bessent recently declared that trade relationships would emerge “stronger at the end of the process” despite the Trump administration’s contentious tariff policies. His optimism, expressed at the Milken Institute Global Conference in 2025, hinges on the belief that these measures will ultimately yield “better terms of trade” and spur economic growth. But with global merchandise trade volumes projected to decline and protectionism on the rise, is Bessent’s vision realistic—or is the world hurtling toward a fragmented trade landscape?
A World of Contradictions
The World Trade Organization (WTO) warns that world merchandise trade volume could shrink by 0.2% in 2025, a stark reversal from earlier forecasts of growth. This reversal stems largely from new tariffs and the lingering uncertainty they create. 
. The U.S.-China trade deficit has swelled to -$355 billion, and retaliatory measures risk derailing progress in sectors like textiles and electronics.
Yet Bessent’s confidence is rooted in the administration’s broader agenda: tariffs as a tool to reset trade relationships and achieve a 3% GDP growth target within a year. Proponents argue that short-term pain could lead to long-term gains, particularly if the U.S. can leverage its economic clout to secure better trade terms.
The Tariff Trap
The data, however, paints a more complex picture. Developing economies face disproportionate harm from tariff structures. For instance, agricultural exports from poorer nations face average tariffs of nearly 20% under most-favored-nation terms, while textiles and apparel face 6% barriers. These rates, combined with tariff escalation (where finished goods face higher duties than raw materials), stifle industrialization and limit value-added manufacturing.
Regional disparities exacerbate the problem. North America’s exports are projected to plummet by 12.6% in 2025, subtracting 1.7 percentage points from global trade growth. Meanwhile, Asia’s trade volumes grow modestly, buoyed by regional integration and low tariff structures. Yet even here, South-South trade—a critical growth engine—faces average tariffs of 15%, stifling intra-regional ties.
The Services Sector: A Fading Beacon
Services trade, which accounted for 26.4% of global trade in 2024, is also faltering. While not directly subject to tariffs, falling freight demand (driven by weaker industrial activity) and economic uncertainty are slowing its growth to just 4% in 2025. . This decline underscores the interconnectedness of trade sectors: when goods trade falters, services follow.
Diversification Amid Chaos
One silver lining is the reversal of nearshoring and “friendshoring” trends. Companies are now diversifying supply chains across multiple regions to mitigate risks, benefiting smaller economies. This shift, while reducing reliance on single markets, introduces new complexities. For instance, Chinese exports to regions outside North America are projected to rise by 4–9%, while U.S. imports of Chinese textiles and electronics could plummet. This trade diversion could create opportunities for Southeast Asian manufacturers but also fuels geopolitical friction.
Betting on Bessent’s Vision
Bessent’s optimism rests on two assumptions: that tariffs will force better bilateral deals and that trade policy uncertainty will subside. The first is plausible—U.S. negotiators may indeed secure concessions from trading partners. The second is less certain. The wto estimates that policy uncertainty alone could shave 0.8 percentage points off global trade growth, a drag that could persist if tariffs remain unresolved.
The numbers tell a cautionary tale:
- A 3% U.S. GDP growth target seems ambitious against a backdrop of declining trade and rising protectionism.
- Developing economies, particularly in Africa and South Asia, face tariff escalation rates that could limit their industrial growth for decades.
- Even if tariffs are rolled back, the damage to trust in multilateral institutions like the WTO may take years to repair.
Conclusion: A Fragile Optimism
Bessent’s vision of stronger trade ties by 2025 is far from assured. While diversification and trade diversion may unlock niche opportunities, the 0.2% global trade decline and 15% South-South tariff barriers highlight systemic challenges. The U.S. may secure better terms with key partners, but without broader multilateral cooperation, the risk of trade fragmentation—and its attendant costs—remains high.
Investors should proceed with caution. Sectors tied to tariff-sensitive industries, such as textiles or semiconductors, face headwinds. Meanwhile, firms with diversified supply chains or exposure to resilient sectors like agri-food may weather the storm. The path to stronger trade ties is narrow—and fraught with political and economic pitfalls.
The verdict? Bessent’s optimism is a gamble—one that requires more than tariffs to succeed.
