Who has Trade Leverage over America?

Leverage on the buy-side and supply-chain side differ greatly.

Factful Friday, 08 August 2025.

Introduction.

President Donald Trump’s war on the trade system is now in a strategic pause; it seems that he thinks he has done enough winning for now.

But a unilateral halt to the escalation doesn’t mean the rest of the world will sit still. Many nations were waiting to find out what tariffs their exporters would face before seriously contemplating counter measures, including forming coalitions. The BRICS, for instance, were hit much harder than many expected.

Today’s Factful Friday is about looking at the facts on two types of leverage that the rest of the world has over the USA, and vice versa.

We start with the most obvious form of leverage – the one POTUS is using. America’s war on trade is fought with one weapon: US tariffs. The President’s weaponisation of trade works because foreign companies like to export to America and US tariffs make that harder. Market size matters. And when it comes to trade, market size equals leverage. So how much leverage does the US have on this score?

The US market is not as large as you might imagine. As the chart below shows, US imports amount to only 14% of all world imports. That makes it the world's largest import market for a single country. The EU countries taken together, however, account for twice as much, with a share of 28%. Even China, which is the number two largest single nation for imports, has a share of 10%. So, the US is big, but not that big.

But leverage on the import side tells only half the leverage story.

The other side of the leverage coin: supply chain dependence.

In today’s world of interconnected supply chains and strategic dependencies, there is another kinds of trade leverage that matter. An excellent example of this being the way China has used export controls on rare earth magnets to force the US to backdown from its 2 April 2025 tariffs (see my recent Factful Friday on this).

This is supply-chain leverage in contrast to buy-side leverage. Think vulnerable to international supply chains. This is the leverage that allowed China to force President Trump to back down in May 2025 (see my long form on this in my recent Factful Friday). This is the power other countries have over you when they control key supplies, components, or raw materials that your economy relies on. If they shut the tap, you feel the pain.

First, we’ll look at who’s hooked on selling into America and how much leverage that gives Washington, and vice versa, namely who has buy-side leverage over US exports. Then we’ll flip to supply-chain leverage and examine where the US is vulnerable to foreign suppliers.

Leverage on the export side: mercantilist thinking.

In politics, exports are good, imports are bad. To politicians, more exports mean more sales by national companies and thus more profits for the shareholders and more jobs for the working class. In economics, it’s just the opposite, but never mind.

Leverage is all about politics, so it is the political perspective that we’ll use. This is exports-good-imports-bad view is called mercantilism. It has been around for centuries. In relatively recent times, Alexander Hamilton gave it a fresh lick of paint with his thriller (not), Report on Manufactures (1791). See Irwin (1996) for the idea’s intellectual family tree.[i]

Having a big, juicy market – like America does – gives a country leverage in trade talks. Everyone wants access to your consumers. Let’s call that mercantilist leverage, or export-side leverage.

US mercantilist leverage over its partners.

Let’s start with the most obvious form of leverage, which is certainly the one Donald Trump has in mind.

So, who does the US have mercantilist leverage over? The chart below gives us the answer.

Unsurprisingly, Mexico and Canada are extremely exposed. Canada sends about 73% of its exports to America. For Mexico, it’s around 82%.

These are perfectly natural figures when you consider the gravity model of trade: countries tend to trade with big, nearby partners. And it’s hard to get any closer than Canada and Mexico. The US, for its part, is the largest economy in the world when measured in current-dollar GDP, and this is the relevant metric when we’re talking about selling into a market.

Other countries are surprisingly less dependent. China, for instance, sends only 12% of its exports to the US. Japan, Korea, India, and Taipei are in the “about 20%” club. One standout is Vietnam, which sends 34% of its exports to the US.

And then there’s the UK, selling just 13% of its exports to the US. Why? Because, like Mexico with the US, Britain is structurally tied to the EU, which is very large and very close. Brexit dampened UK exports to the EU but even an extreme policy like that can’t overcome the (trade) law of gravity.[ii]

The EU is a special case since it does most of its trade inside the Union. Given that this trade is governed by very different rules and is not subject to geopolitical concerns, it is frequent to consider only the EU’s trade with non-EU nations. When we use those figures, the US absorbs about 22% of the flows. But if we take the exports of all 27 EU members to the US and divide it by their exports to any country – including those inside the EU, then the EU looks much less dependent on the US market: only 8%.

Foreign mercantilist leverage over America.

US exports go mostly to three big markets. To EU for 18% to Mexico for 16% and to Canada for 17%. After that it's really quite dispersed with the UK accounting for 4%, Taipei for 2%, Korea for 3%, Japan for 4%, and China 7%. The other quarter is spread over the whole rest of the world. But don't miss the fact that half of US exports go to just three economies.

The next chart lays the facts next to each other to highlight leverage asymmetries between US traction over foreigners and foreigners’ traction over America. There are some extreme asymmetries on display, as one should expect given the relative size of the US economy. For all the partners apart from China and the EU, the US has the upper hand in terms of mercantilist leverage – and this by a long way.

For China, the US’s export share is about 12% while for the US the corresponding share is 7%. For the EU, the asymmetry of leverage is reversed if we use total EU exports, but not if we use only extra-EU exports.

It's important to note that the sales to Mexico and Canada involve a lot of back-and-forth trade so these gross numbers overemphasize the importance on the selling side. Or, to put that another way, a lot of the exports of the United States to Mexico and Canada are not final goods that stay with customers on the other side of the border. They’re intermediate goods that get processed and often returned back over the border into America.

And that brings us to the less visible side of leverage: supply chain dependence.

Leverage on the import side: supply chain dependence.

While much attention is given to American leverage as a dominant import market, the flip side, namely America’s dependence on imported industrial inputs, creates its own set of vulnerabilities. As always, the vulnerability goes both ways.

Many US factories rely heavily on foreign suppliers for parts, raw materials, and components that are essential to modern manufacturing. These inputs are often highly specialized, subject to stringent quality standards, and sourced from established foreign partners with unique expertise or production capabilities.

For industries ranging from automobiles and advanced electronics to pharmaceuticals and jet planes, switching to new suppliers is neither quick nor cheap. Reconfiguring supply chains can involve costly retooling, rigorous qualification processes, and significant delays, all of which can disrupt production and erode competitiveness. As a result, America’s industrial strength is inextricably linked to the reliability of key trade partners. And vice versa. Disruptions of these supply relationships can expose firms to considerable operational and economic risk.

OK, so who is dependent on whom?

US reliance on foreign industrial inputs.

As the chart below shows, The bulk of US imported industrial inputs Two US manufacturing come from just four countries with the EU being by far the largest supplier. Fully 23% of US imported industrial intermediates come from the EU. Also fairly massive vulnerability of the US to the EU if the US if the EU ever decided to play hardball.

Next in of partners that have this sort of supply-chain leverage over the US are Mexico with 15% and Canada with 12%. The number for China is only 11% but as we've seen China's dominance of certain critical industrial inputs is radically higher. Chinese inputs for batteries and solar cells and rare earths are critically important. After that come Japan Korea and Taipei all with four to 5%. India is not very does not have very much leverage in the aggregate at 3% but it is far more important in pharmaceutical intermediate inputs.

Under president Biden and previous administrations, it was widely assumed that allies in Europe North America and Asia like Japan Korea and Taipei would never hold back critical industrial inputs from American industry. Indeed, that was the basis of what used to be called “Friend shoring,” but the current president’s aggressiveness on trade has made that less of a sure bet now than it was previously. I can't imagine any of them really hardball with the US if nothing else they all depend upon the US security umbrella including the nuclear umbrella.

This exposure or vulnerability gives these countries leverage over the US on the supply side. Note that China and the EU together make up a third of US imported industrial inputs. Mexico and Canada account for another quarter. Only China has weaponized this sort of supply-chain leverage so far.

US supply-chain leverage over its partners.

So what is the US leverage when it comes to supply chains? The chart below looks at this question. Here the US and its partners are swapped compared to the previous chart. That is to say, the chart shows the partners share of imported industrial inputs that come from the United States.

A high number here, for example for Canada’s 64%, means that Canadian factories are quite reliant on the US for industrial intermediate inputs. Same is true for Mexico but a little bit less at %%%. These two very high numbers – combined with the high dependence of the US on inputs from Canada and Mexico – are why I called the 3-nation region “Factory North America.” You shouldn’t really think of manufacturing in any of the three countries as being fully independent because they're really buying lots of inputs and final goods in manufacturing from each other. To put it pithily, America doesn’t make cars in America, it makes them in North America.

Beyond Factory North America’s two-way vulnerability, the US has lots of supply-chain leverage over Taipei (24%), and Japan (14%).

Notably the number for China is quite small at 5%. The US had much higher leverage at the beginning of the first Trump administration, but Beijing learned its lesson and has for many years been reducing its supply-side dependence on the US. The Biden administration’s export restriction policies against China accelerated the trend.

Supply-side leverage asymmetries.

Putting together the US dependence on partners supply chains, and partner dependence on US supply chains, we see a clear pattern in the chart below.

The US is more important as a supplier to most of its partners than vice versa. Indeed of its ten top trading partners (those in the chart), the US has a leverage advantage with all but the EU and China.

The asymmetric dependency on China is a pretty standard. Most countries are, like the US, more exposed to Chinese inputs than vice versa. On this point, see my 2023 Brookings Paper on this with Rebecca Freeman and Angelos Theodorakopoulos.

Summary and concluding remarks.

When it comes to buy-side trade leverage, the US has the strongest hand at the table. On the mercantilist side of the leverage, the partners are more dependent on the US market that vice versa with one exception. Taking all the trade of the EU members together, the US market absorbs only 8% of EU exports, while the EU takes in 18% of US exports. The still results in a bilateral trade deficit since the US is a much more closed economy than the average EU nation. It also matters that US exports on the whole are much smaller than US imports with the world as a whole.

If we only count the exports that the EU spends to non-EU nations, then the US upper hand carries through even for the EU since America takes in 22% of the extra-EU exports.

None of this is surprizing. America, being the largest import market in the world, has lots of classic mercantilist leverage. Many nations, especially neighbours like Mexico and Canada, are deeply dependent on selling into the US. The asymmetries are stark: while the US can credibly threaten to close its doors, most of its trade partners can’t afford to see those doors shut.

But on the supply-chain side, the picture flips. America is surprisingly exposed to the EU and China. Its factories, and thus its industrial competitiveness, depends heavily on imported inputs from a handful of key partners. Here, the leverage often flows the other way. China and the EU supply one-third of US imported industrial inputs. The US exposure is much greater in certain products like rare earth magnets and green tech goods, as mentioned. It was exactly this leverage that China used to back the US down off its ‘reciprocal’ tariffs in May 2025.

Which type of leverage is stronger? I would argue that China’s leverage over the US on the supply-chain side is much more powerful than the US’s leverage over China on the mercantilist side. It is certainly more of a precision weapon since China can target individual companies and vary the pressure month-to-month. Tariffs are, by contrast, a blunt and slow-moving weapon.

I fully expect China to continue to force the Trump administration to reduce US export controls aimed at China in exchange for allow rare earth magnets to flow to American factories. In this world of finely tuned supply chains, cutting off parts can be more painful than cutting off markets.

And don’t forget the mutual dependency. North America’s manufacturing system is deeply integrated. The data shows that Canada and Mexico aren’t just vulnerable to US tariffs; they’re also reliant on US inputs to keep their factories running. That’s not a supply chain. That’s a shared production ecosystem. It’s Factory North America. I believe this is exactly why President Trump exempted USMCA-compliant parts and components from his 25% tariff (imposed early in his term) and made US-content duty free when it comes to autos made in Canada and Mexico. It’s why, in other words, POTUS extended sweetheart tariff treatment to Mexico and Canada.

What I take away from this is simple: trade leverage is a two-sided coin. Wielding it recklessly can cut both ways. America may have the biggest import market, but it still relies on foreign suppliers to keep the shelves stocked.

It seems likely that at least some of the large emerging economies will hit back at the US in some way or another.

And that’s it for another Factful Friday.

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[i] Irwin, D. A. (1996). Against the tide: An intellectual history of free trade. Princeton University Press.

[ii] Bilateral trade flows obey the laws of economic gravity. Big economies trade more, and distance, in economics as in physics, reduces the flows. The US trades more with Canada than Cambodia, not because of politics, but because geography and GDP.