US President Donald Trump's threat to impose new tariffs on 10 countries in almost as many days has made America a "completely unreliable trading partner" and is driving the formation of fresh trading blocs.
Economist Warwick McKibbin, a former board member of the Reserve Bank of Australia, said Mr Trump's recent announcements continued the chaos seen since the so-called Liberation Day tariffs imposed in April last year.
"The US used to be a reliable trading partner, and now it's a completely unreliable trading partner," he said.
"Remember the US is only 15 per cent of world trade, so it's actually a very small share of global trade."
What tariffs have been threatened in 2026?
The Trump administration has threatened new tariffs on 10 countries in the past fortnight.
On January 18, Mr Trump said he would place a new 10 per cent tariff on eight European countries because of their opposition to America's push to annex Greenland.
Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland and Great Britain were on this list.
Those tariffs were threatened to come into effect on February 1.
The import tax would then increase to 25 per cent on June 1, and would continue until a deal was reached for the US to purchase Greenland — an Arctic island that is part of the Kingdom of Denmark, a NATO member.
The North Atlantic Treaty Organization (NATO) is a political and military alliance between North America and countries in Europe.
But within days, Mr Trump dropped those flagged tariffs after agreeing to a "framework of a future deal" on Greenland with NATO's chief Mark Rutte.
"This solution, if consummated, will be a great one for the United States of America and all NATO nations," Mr Trump said.
"Based upon this understanding, I will not be imposing the tariffs that were scheduled to go into effect on February 1st."
On January 25, Mr Trump said he would place a 100 per cent tariff on goods imported from Canada, if it went ahead with its trade deal with China.
"[Mark Carney] thinks he is going to make Canada a 'Drop Off Port' for China to send goods and products into the United States, he is sorely mistaken," Mr Trump said.
The deal resulted in Canada reducing its import tax on Chinese electric vehicles from 100 per cent to 6.1 per cent but it imposed an annual import cap — 49,000 vehicles in 2026, rising to 70,000 by 2030.
In return, Beijing lowered its tariffs on Canadian canola seeds from 84 per cent to about 15 per cent.
The Trump administration also said it would increase tariffs on South Korea because of delays in approving a trade deal announced last year.
Mr Trump threatened to raise tariffs on South Korea from 15 per cent to 25 per cent, saying it would apply to products such as automobiles, lumber and pharmaceutical drugs.
What could be the impact of the tariffs on the US?
In contrast to the collapse of financial markets, the impact of shifts in trade policy is slower to see, according to economist Amy Auster, director of the Policy Institute Australia.
She highlighted a recent study by the National Bureau of Economic Research that examined the long-term impacts of the United Kingdom leaving the European Union after the Brexit referendum.
It estimated that by 2025, Brexit had reduced Great Britain's gross domestic product (GDP) between 6 to 8 per cent, and investment down by at least 12 per cent.
It also estimated it reduced employment by 3 to 4 per cent, and productivity by the same.
"[With financial markets] we see prices tumble and they're on the open exchange and we can see all of the information that's happening by the minute," she said.
"Tariffs and the prices of traded goods and services aren't necessarily broadcast on charts, on TV screens around the world every minute of every day.
"So we don't see it as quickly or as clearly."
Professor McKibbin modelled scenarios of the Trump administration's initial so-called Liberation Day tariffs.
He found the impact could see higher prices passed on to US consumers and slower overall global economic growth.
"The [short-term] impact is like breaking your arm, but the long-term impacts of these tariffs are like cancer," he said.
University of Technology Sydney economist Roy Green said the danger was the US might isolate itself.
"In the post-war period when the US was 40 to 50 per cent of the world economy, and certainly most of its manufacturing, the US might've got away with dominating not only its hemisphere, but the entire world economy," he said.
"But those days are gone. We're in a multipolar world now, and we're beginning to see the formation of trade blocs."
The world diverting away from the US
Since the beginning of the year, longstanding trade negotiations with some of the largest trading blocs have been finalised.
The European Union agreed a trade deal with the Mercosur trading bloc, which includes Argentina, Paraguay, Brazil and Uruguay.
It is expected to increase EU exports to the region by almost 40 per cent by 2040.
The EU also struck a trade agreement with India, which is expected to see EU exports to India double by 2032.
Professor Green said both deals were in negotiations for decades.
"But with the advent of Trump, they've all been accelerated towards conclusions that do not include the US," he said.
But Ms Auster said it was difficult to bypass from the US completely, especially financial markets.
"The US bond market is the dominant bond market globally. The US dollar is the dominant currency," she said.
"The weight of money is so significant that it's very hard to diversify away from the US from a financial investment point of view.
"But I do think that's something that a lot of people will be thinking more about in 2026."
Professor Green said there were signs it was beginning to happen.
"We're seeing it in the bond markets where countries that were the biggest buyers of the US bonds are now diversifying into other currencies, including the Australian dollar and Australian treasuries," he said.
"This has led now to depreciation of the US dollar. So that again, is a reflection of how the US is abandoning and extricating itself from normal trade relations."
For the first time since 1996, global central banks have added more gold to their reserve holdings than US government debt, which has largely been led by China and India.
Professor McKibbin said this posed risks to the US economy because of its mounting debt, because it was bigger than the US defence budget, and only second to its spending on social security.
"So the US needs people to lend it money to finance its excess spending," he said.
"So while the dollars are prime trading currency and the prime financial centre, they're the wrong side of the transaction in terms of who bears the risk.
"Because at some point, countries or people, the private sector don't want to hold US government securities."
