The hype of trade diversion in the era of Trumpism

Even a first year university student in Economics can get that it is unnatural for trade to be stagnant. On the contrary, every single hour, day and so on trade is bound to go up and down depending on market demand and supply. Especially in times of fierce trade wars coming from the other side of the pond and zero sum games, or please bow to the Orange King games, trade is entirely disrupted and is unpredictably entering uncharted waters.

Yet the European Union had launched a tool to monitor imports based on customs and other data. Among others the tool draws heat maps, not the ones of the boiling climate changed EU summer, but of “too much trade”. For instance, in June the following heat map was the output of that tool

The graph basically reads that in January-May 2025, the very top EU-Globe imports in the EU alphabetically came from China on textiles, wood, chemicals, metals and machinery, from EFTA countries rubber and plastics, from India textiles and chemicals, from the brexited UK manufacturing, from the US food and chemicals, from India manufacturing, from the rest of the world electrical equipment and the whole world summary is food, textiles, chemicals and machinery. Well, good to know!

The gist of this “heat map” is none other than the key areas the EU is good at for business in 2025 and nothing more. All in all, it seems the EU has been competitive for business in those main areas of goods. In other words, the lion’s share of 2025 GDP thanks to trade comes from these few countries and those few product categories. To make it even easier, a good reason the EU economy is doing not too bad today or is not paralyzed by the Trump tradewar, yet, is the mere EU-Globe business with the “heat map countries”.

Then why daemonize the whole imports thing or even framing it as a terrifying “trade diversion” as an result of the US tariff war? Let’s imagine you are a small family business in Norway, member of EFTA, doing business in plastics. And you are caught in the MAGA tornado, which means you used to have a couple of clients in the US but now with the obscene tariffs and the too much uncertainty in the MAGA policies it is safer for your family’s business to a) not pay excessive taxes in the US to sell plastics in Los Angeles and b) grow more the business in the EU which till now is a relatively more stable trade environment to sell plastics to. How wrong is that?

Since when doing business and being competitive became a crime in the EU? The aforementioned tool is useful for Berlaymont to draw handsome statistical output but often bureaucrats or civil service officials tend to have little experience in Small and Medium Enterprises and will never get the worries and anxiety a small business lives daily, let’s say in Iceland, also an EFTA member. But still the Berlaymont bureaucrat will frame it simple business as “trade diversion”, just because it sounds sophisticated and a “brilliant” communication tactic but in reality nobody there gets the family catastrophe an SME suffers from the trade wars and all.

So, trade diversion is mainly nothing else but a way to describe reality, nothing to daemonize, no matter how sexy it sounds in the EU these days. The heat map is bound to show the areas the EU is competitive in business and taxes and nothing more really.

Not to omit here that for the imports to take place there was dire demand in the EU in these sectors, which means that the EU didn’t produce as much as it needs in these sectors or simply that international business is still business and will never stop being so. If it hadn’t been for the “hot countries” in the “heatmap”, the EU would suffer from being unable to meet its needs in various markets and its economy would go down the drain.

So, what is the solution to trade diversion? There is no solution to a non problem, as diversion is not an issue but a policy hype. It is super nice to monitor trade and have beautiful heat maps and all but it is also nice to do business. For the EU to do business it needs all these major importers, including China which has also been daemonized recently. Even after the US trade war kick off, the EU seems not so keen to realize that the old pal US is now a trade foe.

Realizing that a good old friend double crossed you is hard but what is even harder is for the EU block to be isolated and do free trade solely between 27 members. Soon, the EU will have to realize one way or the other that it needs to open up business with the rest of the world, especially in an increasingly unstable world tradewise and not only.

There are indeed efforts to grow business outside the EU e.g. Indonesia, Korea, GCC, but perhaps one doesn’t see the elephant in the room, the world’s number two economy? The world will be watching closely now whether Brussels can have a good progress during the China-EU Summit 2025 that begins this Thursday 24 July, instead of going to Beijing with various dogmas of “diversion” or mere protectionism.