Global consequences of a more protectionist world

In February 2026, the U.S. Supreme Court struck down the tariffs President Trump had imposed under emergency powers, ordering hundreds of billions of dollars in duties refunded to importers. Within days, the administration invoked a different legal authority to reimpose a 10% global tariff, only for a federal trade court to strike that down too, in May.

The whiplash captures where global trade policy stands in 2026. The pattern indicates that there’s not a single trade war, but a constantly shifting patchwork of duties, safeguards, and retaliations that businesses now have to plan around as a permanent feature of doing business, not a temporary shock.

A regime, not an event

The scale of the shift is historic. The Yale Budget Lab estimated the U.S. average effective tariff rate reached 11.8% by April 8, 2026. This marks the highest level since the early 1940s (excluding 2025) before it eased towards 7% as Section 122 tariffs lapsed and importers substituted away from the highest-taxed suppliers. That “pre-substitution versus post-substitution” gap matters more than it sounds: the higher figure reflects the true welfare cost before firms make painful sourcing changes, while the lower figure reflects the world after those changes, indicating part of the apparent relief comes not from policy easing but from companies quietly abandoning suppliers and product lines.

The Tax Foundation calculates the tariffs cost the average American household about $1,000 in 2025 and will add roughly $700 more in 2026. Federal Reserve researchers have traced a direct line from the levies to prices, exploring tariffs implemented through late 2025 pushed core goods inflation up by 3.1% by February 2026.

Crucially, the trend is no longer a bilateral U.S.-China story. A joint WTO-IMF tracking index found global trade-policy activity, including new tariffs, subsidies, and safeguards combined, running nearly double 2024 levels in the first five months of 2026, the busiest period since records began after the 2008 financial crisis. The European Union has tightened steel safeguards, India has proposed retaliatory duties; Mexico introduced surcharges of up to nearly 50% in a January move importers dubbed as “tariff tsunami,” and governments across Latin America and Africa have raised barriers specifically to block discounted Chinese exporters from displacing nascent domestic industries. Protectionism, in other words, has become a defensive reflex adopted by importers and competitors of China alike, not solely a U.S. export.

Where the strain actually lands

The unevenness of the impact is the part policymakers underweight. Federal Reserve Bank of New York survey data shows roughly 80% of U.S. goods and retail firms have passed on at least some tariff-driven cost increases to customers, while some 60% absorbed part of the hit themselves, often doing both simultaneously to preserve customer relationships without destroying margins. That balancing act favours scale. A Ship4wd survey of 500 U.S. small businesses found 96% had been directly hurt by tariff volatility in the past year, and by 2026 the share of SMBs passing costs straight to customers had jumped to 82%, up from 44% absorbing costs a year earlier. This shift shows resilience running out, not strategy improving. That fragility isn’t incidental: SMEs account for roughly 97% of all U.S. importing firms, meaning the policy’s practical weight falls disproportionately on businesses with the least ability to hedge it.

The wider significance

None of this has produced a global downturn. As reported by the WTO, merchandise trade volume actually grew 1.9% quarter-on-quarter in early 2026, buoyed by AI-driven demand for semiconductors and data infrastructure, indicating that trade is fragmenting and reorganising around strategic corridors rather than collapsing outright. The OECD still expects 2.9% global growth this year. 

But Allianz Trade’s framing of “stagflation light,” modest growth alongside inflation near 3.5% and a projected 5% rise in global business insolvencies, threatening 2.1 million jobs, captures the more accurate diagnosis: protectionism’s second act isn’t a single shock economists can model and move past. It is also a slow-burning tax on transactions, felt unevenly by firms with the least bargaining power, that keeps compounding long after any individual court ruling or tariff deadline stops making headlines.