At a Crossroads: How Global Trade Shocks are Reshaping Employment

Global trade shocks are leading economies, firms and workers down a precarious path.From rising trade barriers to supply chain disruptions, the shifts are threatening to dramatically reshape geopolitical alliances, growth trajectories and labour markets. This high-powered conversation with seasoned experts seeks to unpack what these changes mean for economic stability, global growth and just jobs.

This conversation brought together diverse regional, institutional, and disciplinary perspectives to examine these shifts from multiple vantage points – the United States, Europe, China, and the Global South, including India.

Key Insights from Edward Gresser

– Former Assistant United States Trade Representative (USTR) for Trade Policy and Economics (2015-2021). He is currently Vice President and Director for Trade and Global Markets, Progressive Policy Institute.

US Tariff Policy and Rates:

• The administration promised a large increase in U.S. tariffs.
• The average U.S. tariff rate in 2024 was about 2.4% (or 1.5% if Chinese tariffs are excluded).
• Tariffs have been lifted to about 18–20% using executive orders under the International Emergency Taken Out Powers Act and Section 232 (a national security law).
• This rate places the U.S. among the highest tariff countries in the world, comparable to small island countries or least developed states (e.g., Solomon Islands, Bermuda, Chad). This is considerably above India’s 12% rate.
• The administration displays a dislike of multilateralism and international rules, believing they disadvantage the United States, and is intent on imposing its will on the world.

Domestic Opposition and Legal Fragility:

• The public generally views the tariff increases as unpopular, with typically 60–64% expressing dislike.
• The policies are legally fragile because they rely on executive decrees (often based on “far-fetched” national security threats, such as for kitchen cabinets) rather than tariff laws passed by Congress.
• The administration is losing court challenges, and tariffs under the International Economic Emergency Powers Act may be cancelled in the next few months.

Impacts and Unintended Consequences:

• The new system applies highly variable rates to different countries (e.g., India 50% for now, Laos 40%, Australia 10%). This creates confusion for U.S. businesses.
• The macro-level damage varies; while India and China face high tariffs, they are relatively less dependent on the U.S. market compared to countries like Mexico or Central American nations.
• Countries most reliant on preference and Free Trade Agreements (FTA) are most at risk. Special tariff benefits for most countries in Africa and Haiti are being terminated.
• The government of Lesotho has already declared a national disaster, expecting its garment industry to “fall apart” and resulting in 12,000 to 15,000 young women losing their jobs. Haiti’s functional economy relies on t-shirts sold in the U.S., and this sector may also collapse.
• The policy, justified to protect U.S. manufacturing, has so far had the opposite effect: manufacturing share of GDP dropped from 9.8% to 9.4%.
• High tariffs on metal inputs (steel, aluminum, copper) are actually depressing U.S. manufacturing for metal-using companies (like those making aerosol canisters) and encouraging imports from other countries, creating a paradox.
• Ed stated that he does not expect the current situation to improve very much, noting that the country is currently “learning by experience”.

Key Insights from Henrik Isakson

– Director, Trade Policy, Confederation of Swedish Enterprise

European Trade Philosophy:

• The ideal situation for Europe, particularly Sweden, is free and open trade.
• The organization represents traditional free traders who like borders to come down and support the WTO and Free Trade Agreements (FTAs).
• There are no protectionist sentiments in Sweden; most business people believe that companies unable to compete should not be shielded by tariffs.

Major Shifts in Trade Policy:

• Sustainability: Over the last decade, sustainability became the primary focus in European trade, eclipsing traditional market access issues. This applies to green sustainability (which often creates opportunities via new technologies for decarbonization) and social sustainability.
• Security: The dimension of security has become crucial due to the war in Ukraine, sanctions on Russia, and geopolitical tensions with China (and to some extent, the U.S.). These restrictions impose costs, although they may be necessary.

Views on Global Partners:

• United States (U.S.): The trade situation with the U.S. is viewed as “basically bad,” with trust eroded. The EU remains restrained primarily due to the U.S. support for Ukraine.
• China: Trade with China is likely peaking or decreasing. While China is not trusted by many Europeans, businesses continue trading due to China’s role as a major market and supplier. Some European firms are reducing dependence on China, and these activities primarily lead to new jobs in Europe (reshoring), though some might shift to Southeast Asia.
• India: India is flying under the radar and is viewed almost exclusively as a long-term growth opportunity, not a threat. The primary geopolitical concern is India’s close relations with Russia, which prevents a more strategic alliance but does not stop a more fruitful trade relationship.

EU Trade Instruments:

• Unlike the U.S., the EU is pursuing open trade and concluding new FTAs (e.g., Mercosur, Indonesia).
• The Generalized Scheme of Preferences (GSP), which offers preferential access for developing countries, will be extended.
• The EU has introduced new unilateral legislation, including the Carbon Border Adjustment Mechanism (CBAM) or “climate tariffs,” deforestation regulation, and supply chain legislation (CSRD, CSDDD, and Forced Labour Act).
• This extra-territorial supply chain legislation obliges European firms to police their supply chains abroad for sustainability requirements, which could lead to heavy fines if failed. This may affect the quality of jobs in those sectors.
• Henrik stressed that high sustainability requirements must be accompanied by capacity building (education, information, programs) to prevent firms in partner countries from going bankrupt. Aid budgets in Sweden are being redirected towards “aid for trade” programs to fund this assistance.

Key Insights from Yan Liang

– Peter C and Bonnie S Kremer Chair, Professor of Economics, Willamette University

Trade War Impact and Resilience:

• Early estimates suggested that up to 20 million Chinese people could suffer job interruptions due to reduced U.S.-bound exports.
  Current U.S. tariff rates on China are conservatively at least 50% during the current “tariff truce”. It could increase even more if a US-China trade deal falls through.
• China has weathered the trade war relatively well by successfully diversifying its exports. Export growth has been maintained by increases to ASEAN, Europe, Africa, and Latin America, offsetting declines to the U.S.

Job Market Shifts:

• Manufacturing jobs in China peaked around 2013 and have been declining since, while the service sector share of jobs is rising.
• The primary reason for the decline in manufacturing employment is rising labour costs and rapid automation/technology adoption.
• China adopted 268,000 industrial robots in 2022, which is “more than the rest of the world combined”.
• Around 77% of Chinese jobs face vulnerability to automation, primarily affecting low- and medium-skilled positions. Examples include Foxconn replacing over 400,000 jobs with robots.

Government Strategy and Policy Response:

• The government is acutely aware of high youth unemployment (especially among college graduates).
• Specific job measures include providing tax refunds, subsidies, and loans to small, export-oriented businesses. They also support exporters in finding new markets or selling products domestically (trade diversion) and emphasize vocational training.
• Broader economic strategies are more impactful than patchwork job policies:

– Boosting domestic demand (e.g., consumption subsidies, 300 billion yuan budgeted this year).

– Continued technology development to maintain export competitiveness.

– Enhanced trade partnerships (e.g., lower tariffs for 53 African countries, streamlining FTAs with ASEAN).

– Developing the service sector is crucial for boosting consumption (currently low at 46% of total consumption) and creating jobs.

State Aid and Competitiveness:

• The focus on state subsidies in China often misses the “whole forest” of government support.
• Subsidies are a small component of the overall industrial strategy, especially in sectors like electric vehicles (EVs).
• The government’s pivotal role includes securing critical rare earth minerals, supporting infrastructure (like public charging stations), and investing in R&D.
• Local governments also help to secure financing, recruit and retain talents, facilitate local supply chains, and many other aspects.
• Chinese strategic industrial policies are successfully implemented and go far beyond just subsidies.

Key Insights from Ranja Sengupta

– Senior Economist, Head of India Office and Coordinator of Global Trade Programme, Third World Network

Vulnerability of Key Sectors:

• India has high exposure to U.S. tariffs, as 20–25% of its merchandise exports go to the U.S.
• Agriculture, dairy, and fisheries are highly sensitive sectors globally, particularly in the Global South (accounting for over 50% of exports in LDCs). These sectors are critical for women workers.
• India has historically been cautious, leading to the collapse of trade talks with the U.S. because India would not open up its agriculture and dairy sectors.
• Agricultural subsidies in the West (even non-trade distorting ones like the “green box”) have historically impacted the livelihoods of small farmers across the Global South.

The Threat of Non-Tariff Measures (NTMs):

• The focus on tariffs often overlooks the deep impact of non-tariff issues being pushed in U.S. trade deals and WTO agreements (e.g., Intellectual Property Rights, government procurement, e-commerce, and regulatory issues).
• These measures significantly erode the policy space of Global South countries, and policy changes made in response will be difficult to roll back.
• Ranja identified a “double whammy”: the U.S. raises its tariffs while demanding other countries lower theirs, and the U.S. maintains high technical and Sanitary and Phytosanitary (SPS) barriers while demanding others remove theirs or recognize U.S. certificates. Developed countries have vastly more SPS measures than developing countries (U.S. has 3,200; India has 272).
• The U.S. is pushing many countries to join UPOV 1991, a treaty that restricts farmers’ rights to save, exchange, and reuse seeds.

Impact of Digital Trade and E-commerce:

• Automation and AI are replacing low- and medium-skilled workers, while formal and foreign retail (like Amazon) challenge local businesses (“mom-and-pop stores”).
• Ranja highlighted two concerning provisions expected in trade agreements:

– Free flow of data: Though promoted as beneficial for MSMEs, this often results in data flowing to Global North countries where it is developed into goods/services and sold back to the Global South. This challenges domestic digital industrialization policy and can hurt local startups.

– Taxation of e-transmissions: The current WTO agreement prevents countries from taxing digital e-transmissions (downloads like movies or games). Developing countries lose significant potential tariff revenue that could otherwise be spent on vital social services for workers (education, health, training).

Strategic Needs for the Global South:

• Global South countries must prioritize policy space for development.
• The strategy should involve a combination of strong domestic policies, subsidies (linked to the stage of development), technology, and tariffs, deployed on fair terms.
• It is critical to design appropriate digital industrialization policy and robust, sector-specific industrial policies, particularly as industrial policy is back “in vogue” globally.
• Global South countries face the additional challenge of meeting new sustainability standard.