Terms of Trade (TOT),Tariffs, and Dollar Devaluation: What the Data Is Showing

What Are Terms of Trade (TOT)?

Terms of Trade (TOT) represent the ratio between a country’s export prices and its import prices.
It measures how many units of exports are required to purchase a single unit of imports.

The formula is straightforward:

TOT = (Export Price Index / Import Price Index) × 100

If the value rises, export prices are increasing relative to import prices.
If the value falls, imports are becoming relatively more expensive.

Official Data – December 2024 vs December 2025

Across nearly all major trading partners, the Terms of Trade index increased between December 2024 and December 2025.

Interpreting the Shift

An increase in TOT indicates that export prices have risen relative to import prices.
In practical terms, this means that trading partners are receiving more favorable pricing power in the exchange relationship.

If this trend reflects structural pricing strength abroad while U.S. import prices remain firm, then the expected
“protective” impact of tariffs or currency adjustments becomes less evident in the data.

The broad improvement in TOT among Canada, China, the EU, Germany, Japan, the Pacific Rim, and Mexico suggests
that global exporters have not materially weakened in pricing terms during this period.

Tariffs and Dollar Devaluation

Tariffs are intended to raise the effective cost of imports, encouraging domestic substitution.
Similarly, a weaker dollar theoretically acts as an additional barrier by making imports more expensive in local currency terms.

However, when the Terms of Trade for major partners continue to rise, commentary about the immediate
effectiveness of tariffs or dollar devaluation becomes secondary to observable price data.

The numbers show that, as of December 2025, external pricing dynamics remain resilient.
Whether this changes over time is an open question.

The Structural Strength of the U.S. Model

The true treasure of the U.S. economic system over the past decades has been its ability
to increase domestic earnings by delegating intermediate, energy-intensive,
and polluting production abroad.

By shifting lower value-added and labor-intensive manufacturing to countries
with structurally lower costs, the United States achieved:

• Higher corporate profit margins
• Lower domestic labor cost pressure
• Concentration on high value-added sectors (technology, finance, services)
• Lower-priced imported goods supporting consumption

This globalization framework became one of the central engines of earnings growth and asset valuation expansion.

Tariffs and Dollar Devaluation: Limits of Imposition

Tariffs aim to raise the effective cost of imports and encourage domestic substitution.
A weaker dollar theoretically reinforces this by making imports more expensive.

However, global supply chains built over decades cannot be reversed by imposition alone.
Markets adjust, reroute production, and reprice risk.

Without a coherent and long-term industrial policy — including infrastructure,
capital investment, workforce development, and technological scaling —
tariffs risk becoming price distortions rather than structural solutions.

The Reagan Precedent and Why Context Matters

The first major modern example of tariff intervention was under
President Ronald Reagan, who imposed measures
against excessive imports of Japanese automobiles in the early 1980s.

The policy had short-term stabilizing effects because:

• Globalization was not yet deeply integrated
• Supply chains were less complex
• Capital mobility was more limited
• China was not yet a dominant global exporter

At that time, the world had not yet fully discovered globalization.
The structural elasticity of production relocation was far lower.

Conclusion

The U.S. system historically maximized domestic profitability by capturing
high-margin segments of global value chains while outsourcing lower-margin,
cost-intensive processes. Reversing that architecture requires industrial strategy, not simply tariff policy.

It is possible that the data will shift in favor of the United States over time as policy effects transmit
through supply chains, contracts, and currency adjustments.

For now, however, the official data indicate that the global pricing balance — as measured by Terms of Trade —
has moved upward for most major U.S. trading partners.

The situation should therefore be evaluated based on measurable outcomes rather than policy intentions.