The implications of a democracies-only trade pact
13 Feb 2025
What’s being proposed?
Recent proposals call for democratic nations to form an exclusive trading bloc.
Our analysis, which assumes 25% tariffs on all non-qualifying countries, examines the scope and scale of this change.
What does the analysis show?
Scale of change: Would affect 4.3% of US GDP – compared to 1.4% under the Smoot-Hawley Tariff Act
Tariff implications: Would increase average tariff on US dutiable imports from 7.4% to 21.8%, representing a rise of 14.4 percentage points, compared to 5.4 points during Smoot-Hawley
Trade coverage: Would directly impact 93 countries accounting for US$1.2 trillion in US imports
Why should businesses be concerned?
Supply chain implications: Critical materials and manufacturing inputs would face steep new barriers
Inflation risk: Higher tariffs on 38% of US imports would drive up prices, particularly for essential goods
Retaliation threat: US exports to affected countries, currently over US$650 billion in goods or one third of all US exports, would be vulnerable to countermeasures