Global Economic Shift: How Trump’s Tariff War Is Reshaping Global Trade Dynamics

Abstract

This study investigates how President Donald Trump’s tariff war reshaped global trade dynamics between 2015 and 2023 by analyzing panel data from major U.S. trading partners using Fixed Effects and System Generalized Method of Moments (GMM) models. Trade Volume is examined in relation to Tariff Rate, GDP Growth, Inflation, Employment, and Production Level. While the Fixed Effects model shows a short-term increase in trade volume following tariff hikes likely due to trade diversion or stockpiling the GMM results reveal that tariffs ultimately have a negative and statistically significant effect, disrupting trade flows and increasing costs. GDP growth initially appears to reduce trade but shows a positive effect when accounting for dynamic factors, while inflation consistently dampens trade performance. Employment presents mixed results, reflecting sector-specific impacts, and production shows a strong, positive influence, affirming its role in driving trade. Model diagnostics confirm the robustness of the analysis. Based on these findings, the study recommends a strategic shift from protectionist policies toward more open, cooperative trade practices, supported by macroeconomic stability, investment in domestic production, inclusive labor policies to cushion employment shocks, and trade diversification strategies to enhance resilience in an increasingly protectionist global economy.