Realignment of trade relationship with the US since the Liberation Day in 2025

This is the inaugural release of Asia Global Institute’s new data-driven blog series, the Geoeconomic Dynamics Update. The series aims to provide the Institute’s latest analysis about the changing geoeconomic landscapes, covering most recent developments regarding supply chain reorganization, industrial policy, trade policy, and new growth engines.

In this inaugural issue, we use newly updated bilateral trade data through 2025 to track how key partners are adjusting to the United States’ turn toward economic nationalism, from the late Biden years to Trump 2.0 and the Liberation Day tariffs, as well as across-year share changes for how key Asian exporters diversify their exports.

Section 1. Introduction and Global Trends

Following the second inauguration of President Donald Trump in January 2025, the United States has accelerated its turn toward economic nationalism, starting with the shocking Liberation Day tariffs. Unlike his first administration, which focused primarily on China, the Liberation Day tariffs are global, functioning in a threatening, transactional manner that urge US trading partners – many of them long-standing political and economic allies – to surrender economic rights to maintain access to the US market.

This broad-based protectionism has fractured the unified front of US allies, creating a stark geopolitical bifurcation in response strategies. As Miyagawa (2025) observes, the global reaction is currently divided along regional lines: while European and Canadian leaders have adopted postures of defiance and retaliation, Asian economies, excluding China, have generally responded with accommodation, rushing to secure exemptions and negotiate bilateral deals to preserve market access. Vietnam and Taiwan, China, for instance, reduced tariffs on US goods to zero, while South Korea has pledged substantial increases in strategic investments, particularly in the US steel sector. These nations, heavily reliant on the US security umbrella, calculate that they cannot afford to jeopardize Washington's presence in the region and are thus prioritizing market preservation over retaliation.

While Canada and Mexico both operate under the US-Mexico-Canada Agreement (USMCA) and maintain deeply integrated supply chains with the United States, they have charted notably different trajectories until a shared downturn began in August, as noted in Figure 2. Although the USMCA establishes a common regulatory framework, each economy plays a distinct role in the US industrial ecosystem. Mexico serves as a hub for large-scale manufacturing – particularly in automotive, electronics, and industrial machinery – and remains the region’s primary exporter of higher-technology goods. In contrast, Canada’s commercial linkage is heavily weighted toward energy, raw materials, and niche automotive components, rendering it more vulnerable to commodity price volatility and regulatory shifts.

Moreover, their economic structural differences are compounded by divergent strategic responses to recent US trade policies, reflecting a broader geopolitical split between compliance and defiance.

Mexico has pursued a strategy of compliance, avoiding political confrontation to cement its status as the indispensable industrial alternative to China. As Alfaro and Chor (2025) observe, Mexico’s rise to become the top US trading partner has been driven by the “intensive margin” – scaling up production within existing, deeply integrated supply chains rather than expanding into volatile new markets. This “quiet” integration leverages the high “relationship stickiness” of Mexico’s export mix, particularly in contract-intensive sectors like auto parts and electronics where US firms face high sunk costs to switch suppliers. By strictly adhering to USMCA rules of origin and capitalizing on geographical proximity, Mexico has successfully positioned itself to absorb manufacturing capacity shedding from China, effectively insulating itself from the worst of the Liberation Day volatility.

In sharp contrast, Canada has responded to US protectionism with defiance, imposing simultaneous retaliatory tariffs. Carney explicitly declared that the US is “no longer a reliable partner,” characterizing the shift as a tragedy while implementing counter-tariffs. Unlike Mexico’s manufacturing-based resilience, Canada’s recent export growth to the US has been driven heavily by commodities – specifically crude oil, gold, and raw materials. This reliance on the “commodity trap,” combined with a fractious political relationship, has left Canada significantly more exposed to the strategic uncertainty of the current administration.

Figure 3 shows the monthly trends for key Asian US exporters from December 2024 through November 2025. Taiwan, China emerged as a distinct outlier, exhibiting a substantial intensification of its commercial linkage with the US; its export share rose from 22.6 percent in December 2024 to a peak of 38.1 percent in November 2025. Alfaro and Chor (2025) conclude that this growth comes from its export of advanced computer products, including semiconductors, coinciding with the recent surge in US demand for AI-related capital investment, as well as the US reducing dependence on Chinese electronic products. Thailand also demonstrated an upward trend, with its US export share increasing from 18.8 percent to 23.5 percent over the same period. This is consistent with the reallocation of Chinese supply chains into ASEAN.

In contrast, traditional industrial powerhouses saw their reliance on the US market soften. China continued a marked decline, with its US export share contracting from 14.6 percent to 10.2 percent, reaching a low of 9.1 percent in May 2025. Similarly, Japan experienced a gradual reduction in US export dependence, with its share drifting from 20.7 percent to 18.8 percent. This points to a potential diversification of its export portfolio amidst the evolving trade landscape, which will be examined in greater detail in the following section.

Section 3. Economy-Level Share Changes Across Years: Canada; Chinese Mainland; Taiwan, China; and Japan

For economy-level comparison, three years have been selected for observation: 2020, the final year of Trump 1.0; 2024, the final year of the Biden administration and the “status quo” for traditional US-led, rules-based trade; and 2025, an early snapshot of the impact of Trump 2.0 policies following renewed disruptions and tariff shocks. The share of exports destined for the United States in total exports is remarkably similar in 2020 and 2025 for Canada (73.3 percent and 72.9 percent, respectively) and Japan (18.5 percent and 18.6 percent, respectively), with both countries peaking in 2024. By contrast, Chinese Mainland and Taiwan, China exhibit divergent patterns: Taiwan, China’s export share to the United States more than doubled over the five-year period, whereas Chinese Mainland’s share declined from 17.5 percent in 2020 to 11.1 percent in 2025.

Canada

Between 2020 and 2024, the share of Canada’s exports destined for the United States rose from 73.3 percent to 76.4 percent. However, in 2025 this figure fell back to 72.9 percent, slightly below its 2020 level. Concurrently, trade flows reoriented toward European markets: the share of exports to the United Kingdom increased from 3.6 percent in 2024 to 5.7 percent in 2025, while the share destined for the European Union recovered from 4.4 percent to 5.4 percent, suggesting a renewed emphasis on trans-Atlantic trade corridors amidst shifting North American dynamics. Exports to China have remained consistent, accounting for 4.8 percent of Canada’s exports in 2020, dipping to 3.8 percent in 2024, and then recovering to 4.4 percent in 2025. Trade with ASEAN member states and Mexico has also hovered around 1 percent, suggesting limited direct economic ties between Canada and these economies. While ASEAN’s small share may be partly explained by geographic distance, Canada’s low export share to Mexico is more surprising given their economic connections through the USMCA – it is likely that both countries are deeply integrated into US-centered supply chains, but not extensively with each other.

Chinese Mainland

The US share of China’s total exports decreased from 17.5 percent in 2020 to 14.7 percent in 2024, falling further to 11.1 percent in 2025. Unlike other economies that saw a rise in their share of US exports during the Biden administration, China’s export share continued to slide, signaling a structural decoupling driven by persistent trade barriers and geopolitical friction.

This reduction has been offset by a strategic pivot toward the Association of Southeast Asian Nations (ASEAN). Over the same period, ASEAN’s share of Chinese exports grew from 14.8 percent to 17.6 percent, effectively replacing the United States and the European Union as the Chinese Mainland’s largest export market. This shift is underpinned by robust institutional frameworks, including the Regional Comprehensive Economic Partnership (RCEP) and the upgraded China-ASEAN Free Trade Area (CAFTA) 3.0. Furthermore, China’s network of bilateral free trade agreements with individual ASEAN members continues to deepen this economic integration.

China’s trade share with the EU has remained relatively stable over the three observation years, around 14 percent of its total exports. Despite previous friction, recent bilateral negotiations regarding tariffs on electric vehicles (EVs) and dairy products suggest their mutual interest in managing disputes. As both economies face strategic uncertainty from US trade policies, there is potential for increased engagement and a joint response to navigate the shifting global trade landscape.

Taiwan, China

In contrast to the trends observed elsewhere, Taiwan, China exhibited a sharp increase in its share of exports to the United States, as well as a modest increase in its export share to ASEAN, which is an important pillar of the economy’s New Southbound Policy. The US share of Taiwan, China’s exports more than doubled, rising from 14.7 percent in 2020, to 23.5 percent in 2024, and finally to 30.4 percent in 2025; this annual growth trend is consistent with what is observed in the December 2024 – November 2025 monthly trends. As of November 2025, Taiwan, China has become the fifth largest importing market of the United States.

This surge in US export share coincided with a structural contraction in exports to the Chinese Mainland, which fell from 29.7 percent in 2020 to 20.4 percent in 2024, and further to 15.8 percent in 2025. This decoupling is largely a function of regulatory bifurcation: Taiwan, China’s own export controls on the Chinese Mainland, exemplified by the Strategic High-Tech Commodities (SHTC) List, and strict compliance with US measures, such as the Foreign Direct Product Rule (FDPR), have severed traditional semiconductor flows. Concurrently, Chinse Mainland’s restrictions on Taiwan, China’s agricultural products, imposed in response to cross-Strait political friction, have further depressed trade volumes. Given the prevailing geopolitical uncertainty in the Taiwan Strait, this downward trajectory is unlikely to reverse in the near term.

Japan