Countries around the globe are nervously ready to see if — and the way — Donald Trump follows by on his drastic tariff threats after he’s sworn in as U.S. president on Monday.
If Trump does all he’s mentioned he’ll do, he may saddle U.S. corporations with an estimated $640 billion in import prices and drive up home inflation, as his promised 60 p.c tariffs on items from China, 25 p.c on Canada and Mexico, and common flat tariffs of as much as 20 p.c on different nations chunk.
Unlike in 2017, when many governments have been blindsided by Trump’s aggressive commerce actions, leaders in Ottawa, Brussels and Beijing have been hunkering down and wargaming the best way to fend off the financial shockwave that the heavy duties on U.S. rivals and allies alike would ship rippling across the globe.
They’re additionally drawing up plans to retaliate or give Trump a sweetheart deal to make them go away.
NORTH AMERICA
Canada
— Sue Allan
Trump’s threats
Trump has vowed that slapping Canada with 25 p.c tariffs can be a first-day precedence. “As considered one of my many first Executive Orders, I’ll signal all needed paperwork to cost Mexico and Canada a 25% Tariff on ALL merchandise coming into the United States, and its ridiculous Open Borders,” he introduced on Truth Social in November.
The retaliation playbook
The threats have consumed Ottawa, which is saying rather a lot in a city turned the wrong way up by information that Prime Minister Justin Trudeau is able to resign as quickly as his Liberal Party can discover his alternative.
Despite his self-inflicted lame-duck standing, Trudeau is utilizing time on U.S. networks to warn Canada’s neighbors that their pocketbooks are liable to changing into collateral injury in Trump’s commerce conflict. “Anything an American president does to harm the Canadian financial system may also damage American shoppers and American employees and American progress,” he instructed CNN’s Jake Tapper.
Ottawa has a set of retaliatory measures set to drop on Monday if Trump takes motion. There is discuss of Canada leveraging power exports in its retaliatory response. “Everything is on the desk,” the prime minister mentioned after gathering along with his provincial counterparts in Ottawa.
The prime minister likes to level out that Canada is the highest export associate to about 35 states. “Anything that thickens the border between us finally ends up costing American residents and American jobs,” he mentioned earlier this month.
At the outset of 2024, Trudeau enlisted Canada’s U.S. ambassador and high ministers to journey throughout the U.S. assembly with lawmakers, governors and enterprise leaders in a bid to “Trump-proof” the bilateral relationship. They tracked their outreach on spreadsheets — West Virginia, South Carolina, Texas, Arizona and past — and insisted they have been prepared for battle.
How will it play out?
Trudeau insists that Trump is utilizing threats to annex Canada to distract from any dialog about his tariffs.
Canada’s provincial leaders have additionally rallied in response to Trump — although admittedly not at all times collectively. Ontario Premier Doug Ford confirmed up on Fox News to announce that Canada is just not on the market.
Alberta Premier Danielle Smith lately discovered her option to Mar-a-Lago the place she says she had a constructive dialog with Trump. “I emphasised the mutual significance of the U.S.-Canadian power relationship, and particularly, how a whole bunch of 1000’s of American jobs are supported by power exports from Alberta,” she mentioned in an announcement. Smith doesn’t need Alberta oil and fuel included in Canada’s retaliation measures.
All of Canada’s provincial leaders are anticipated to descend on Washington on Feb. 12 for a full-court press.
Mexico
— Ari Hawkins and Doug Palmer
Trump’s threats
Donald Trump has centered his tariff threats particularly on Mexico and threatened to impose a 25 p.c tariff on the nation in addition to Canada if the United States’ two North American neighbors fail to crack down on irregular migration and the circulation of fentanyl from their nations.
Trump has additionally complained repeatedly about auto imports, accusing Mexico of being a again door for China, and floated 200 p.c tariffs or greater on automobiles from south of the border.
The retaliation playbook
Newly-elected Mexican President Claudia Sheinbaum has sharply pushed again on the president-elect’s threats and vowed to retaliate in a letter she despatched to Trump in November, which underscored the potential financial penalties for each nations.
“For each tariff, there can be a response in variety,” Sheinbaum wrote. Mexican officers are eyeing the agricultural sector for potential retaliation — and are planning a spread of responses primarily based on whether or not or not the Trump administration follows by on his most aggressive proposals.
Mexican officers inform POLITICO that, regardless of the back-and-forth, they’re cautiously optimistic that Sheinbaum’s defiant response to Trump’s threats may garner his respect, and assist facilitate the kind of (at instances) heat relationship Trump shared with former President Andrés Manuel López Obrador.
But the Mexican authorities has extra lately tried to current itself as dedicated to combating unlawful drug trafficking and has carried out crackdowns after Trump’s menace. It additionally says it has taken steps to curb irregular migration and needs to work with the United States to diversify provide chains in each nations out of China.
How will it play out?
Sheinbaum has spoken to Trump not less than twice for the reason that election to emphasize the worth of collaboration on commerce considerations.
Economy Minister Marcelo Ebrard has expressed confidence that Mexico will discover a answer that persuades Trump to not comply with by on his menace. Ebrard famous that Trump threatened comparable tariffs throughout his first time period however didn’t impose them after saying that Mexico had taken adequate motion to deal with his considerations.
The U.S. commerce deficit with Mexico has skyrocketed in recent times, underscoring the financial dangers to each nations from a commerce conflict. Trade knowledge launched in February will most definitely present it reached a report degree of round $170 billion, regardless of Trump negotiating a brand new commerce settlement throughout his first time period to switch the decades-old North American Free Trade Agreement.
It has additionally, nevertheless, drawn the scrutiny of U.S. politicians, significantly Trump, who believes commerce deficits are an indication of financial weak point. And it’ll increase the stress on Mexico within the upcoming yr six evaluate of the U.S.-Mexico-Canada Agreement to comply with quite a lot of new U.S. calls for. Those may embrace new limits on Chinese funding in Mexico, significantly in key sectors like autos.
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CHINA
— Phelim Kine
Trump’s threats
Trump has repeatedly floated a tariff of 60 p.c — and probably even greater — on all Chinese items imported into the United States, telling Fox News host Maria Bartiromo final yr, “I’m not trying to damage China. I need to get together with China, however they’ve actually taken benefit of our nation.”
The president-elect additionally mentioned in an October interview with the Wall Street Journal that if China invaded Taiwan, “I’m going to tax you at 150 p.c to 200 p.c.”
And in a post-election put up on Truth Social, he warned he would increase tariffs on Chinese imports by 10 p.c till Beijing stopped the circulation of Chinese-produced fentanyl into the U.S.
Trump’s marketing campaign platform, in the meantime, states he would revoke China’s “most favored nation” commerce standing — a transfer that might open the door to tariffs of as much as 100%.
The retaliation playbook
Unlike with Mexico and Canada, there was far much less public commerce diplomacy between Trump and Chinese leaders, though the president-elect had a “superb name” with President Xi Jinping on Friday, he mentioned in a put up on Truth Social, that included discuss of “balancing commerce, fentanyl and TikTok and plenty of different topics.”
The Chinese authorities has been cagey about the way it will reply if Trump follows by on his steep tariff threats. China “will firmly safeguard its sovereignty, safety and improvement pursuits,” if Trump violates worldwide commerce guidelines, Chinese embassy spokesperson Liu Pengyu instructed POLITICO final week.
That might imply a replay of China’s response to tariffs that the primary Trump administration imposed on Chinese imports in 2018 — a spherical of retaliatory tariffs focusing on the U.S. agricultural sector that value it $10 billion in misplaced export income.
That finally prompted negotiations which led to the 2020 signing of the U.S. China Phase One commerce deal, which Trump then hailed “a momentous step … towards a way forward for truthful and reciprocal commerce.” Beijing has, nevertheless, did not ship on key commitments, together with shopping for U.S. items and providers, regulatory modifications to hurry imports of genetically modified agricultural merchandise, and patent approval for U.S. pharmaceutical merchandise.
How will it play out?
Beijing’s response might hinge on the diploma to which it feels “singled out” for commerce punishment, mentioned Greta Peich, the previous basic counsel of the Office of the United States Trade Representative. “China is much less more likely to be aggressive if [Trump’s] commerce motion is impacting all commerce,” Peisch added. Beijing possible needs to keep away from an escalatory commerce conflict because it tries to maximise exports to stimulate its sputtering financial system.
That might tempt Beijing to reply by “impeding the Chinese operations of some U.S. corporations,” quite than tit-for-tat tariffs, mentioned Peter Harrell, former senior director for worldwide economics within the Biden administration.
Beijing might even attempt to cease a brand new commerce conflict earlier than it begins by “preemptively making a suggestion to Trump of a deal to keep away from new tariffs … or placing a commerce provide on the desk early to attempt to head off an escalation,” Harrell added.
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EUROPE
European Union
— Camille Gijs
Trump’s threats
Trump has vented his fury on the European Union for not shopping for sufficient American autos or farm produce and is claimed to be “obsessed” by the variety of German automobiles on the streets of Manhattan. But, since his Nov. 5 election triumph, he hasn’t immediately threatened something past common tariffs. What he has performed is stake a shocking declare to Greenland, coveting the Danish protectorate’s mineral riches and looking for to mission energy northward because the melting Arctic ice opens up new commerce routes.
The retaliation playbook
Trade tensions between Washington and Brussels run deep, with the 2 sides unable to reap the benefits of friendlier ties beneath Joe Biden to resolve a festering dispute over U.S. metal and aluminum tariffs. A truce on the EU’s personal retaliatory tariffs will lapse on the finish of March — and Brussels hopes that can drive Trump again to the negotiating desk.
Ursula von der Leyen, the president of the EU government, has already proposed shopping for extra U.S. liquefied pure fuel to even out the commerce stability. But, in case issues get nasty, the EU can resort to its rising arsenal of commerce protection instruments. Aside from traditional subsidy and dumping investigations, its anti-coercion instrument — developed in response to a first-term commerce combat with Trump — empowers the bloc to impose export controls or duties. This commerce “bazooka” might be utilized in response to any menace by Trump to set off tariffs if, as an example, the EU declines to affix the U.S. in placing up commerce limitations towards China.
Another choice is for the EU to impose comparable tariffs to those imposed by Trump on items it doesn’t depend upon, similar to Harley-Davidson motorbikes, Jack Daniel’s bourbon or Levi’s denims. “Let’s not be naive,” former European Commission official Ignacio García Bercero instructed POLITICO. “Because if the negotiations fail and if the United States feels that we don’t have a reputable retaliation choice, then we aren’t going to go anyplace.”
In the meantime, the EU is pushing to diversify its buying and selling relationships, overhauling its present accord with Mexico on Friday to increase alternatives in providers, strengthen provide chains and bolster funding protections. That follows a long-awaited commerce accord with the Mercosur bloc of South American nations sealed in December.
How will it play out?
The EU’s largest nations — Germany, France, Italy and Ireland — could be at larger danger of incurring Trump’s wrath as they’ve vast commerce surpluses with the United States.
Never a fan of Brussels, Trump is anticipated to choose coping with nations bilaterally, and that would put fragile EU unity to the check. Recent visits by Italy’s Giorgia Meloni and Hungary’s Viktor Orban to Mar-a-Lago present that a number of nations are already attempting to curry favor with Trump immediately — and dodge his tariff onslaught.
Brussels finds itself in a dilemma over whether or not to align with Washington and resist China’s $1 trillion export overhang. If it does, its strategy would diverge from that of the U.S., based on García Bercero, now on the Bruegel suppose tank: “If there’s a willingness to align extra carefully on the best way to take care of Chinese overcapacity, either side can be doing it its personal manner. In the EU, we are going to largely deal with commerce protection, together with extra safeguards.”
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UK
— Graham Lanktree and Sophie Inge
Trump’s threats
Trump hasn’t threatened the U.Ok. particularly like he has China, Canada and Mexico. Still, an financial hit to these nations could be felt in London, with tariffs on Beijing contributing to a shift in provide chains forecast to sluggish U.Ok. commerce with its sixth largest financial associate long-term.
The retaliation playbook
Whitehall officers are determined to keep away from getting in the midst of an escalating tariff conflict between the U.S. and China however must rely extra on diplomacy than financial may post-Brexit to keep away from being caught within the crossfire.
Nevertheless, the Labour authorities has dipped into the U.Ok.’s retaliation playbook from the primary Trump administration and will instantly strike again with duties on these acquainted targets: Harleys, Jack Daniel’s and Levi’s.
Carrots to sweeten a deal for the U.Ok. to keep away from duties are extra helpful, commerce consultants say, like aligning with the U.S. on its hefty duties towards Beijing by opening an investigation into state subsidies for China’s electrical automobile trade and shopping for extra American oil and fuel.
How will it play out?
British Prime Minister Keir Starmer needs talks for a U.Ok.-U.S. commerce take care of Trump’s group to get going within the weeks forward, he instructed POLITICO in an interview Thursday. The PM and Trump have already mentioned assembly within the U.S. subsequent month.
“I’ve been clear that we want to have discussions a few commerce take care of the U.S.,” Starmer mentioned.
Ministers are reportedly now more and more assured that Trump received’t instantly slap tariffs on U.Ok. exports. But worries linger: “Any G7 commerce minister like myself could be involved concerning the discuss of tariffs,” U.Ok. Business and Trade Secretary Jonathan Reynolds instructed POLITICO final November.
While he’s more likely to go after different nations first, British ministers are nonetheless getting ready for the worst, with one senior commerce official stating that “there’s some low-hanging fruit that we could be susceptible to.” They wouldn’t get into specifics, however the U.Ok.’s automotive and pharmaceutical sectors are sometimes introduced up by commerce consultants as stress factors with provide chains in China.
Negotiating a U.Ok.-U.S. commerce take care of Trump would nonetheless see Labour draw purple traces on meals requirements, however No. 10 says Starmer has spoken at Cabinet about “his willpower to pursue a partnership with the US for the twenty first century, which might shield safety, advance our financial progress and leverage the chance of recent applied sciences.” That sounds rather a lot like he has a safety and tech pact in thoughts.
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LATIN AMERICA
— Jakob Weizman
Trump’s threats
Like Europe, Latin America has painful reminiscences of a dispute over the metal and aluminum duties Trump imposed in his first time period. But, with the U.S. having fun with a commerce surplus with South and Central America, the primary concern there’s that Trump’s punitive tariffs towards Beijing may unleash a flood of redirected Chinese exports.
The retaliation playbook
South America lacks the depth of commerce cooperation that — nonetheless — exists between the U.S., Canada and Mexico of their frequent free-trade space, or within the European Union for that matter. And, whereas Argentina’s right-wing populist President Javier Milei was the primary international chief to pay homage to Trump at Mar-a-Lago on his election victory, Luiz Inácio Lula da Silva’s Brazil has fought operating authorized battles with Trump crony Elon Musk and his X social media platform.
Both are members of the Mercosur commerce bloc, which incorporates Paraguay and Uruguay, and which lastly sealed a commerce take care of the European Union in December after 25 years of attempting. Importantly, that deal put up some preemptive safety towards a possible flood of Chinese electrical automobile imports by establishing safeguards — successfully a set off to impose greater tariffs as soon as a vital import threshold is hit.
Yet an absence of unity among the many bloc’s members may make it troublesome to keep up a typical entrance within the face of commerce stress with the U.S. and any additional growth into the area by China, which is already investing in native EV manufacturing. That’s particularly so with Brazil dominating Mercosur and having a seat on the desk within the BRICS rising markets discussion board.
How will it play out?
Trump’s try to comprise China’s worldwide growth might come up quick, and it’s possible that Latin America will find yourself being extra of a bone of competition between Brussels and Beijing. The area’s uncooked supplies and rising integration into world commerce networks make it a geopolitical battleground, with China holding the excessive playing cards and Europe held again by its restrictive guidelines of engagement and an absence of enthusiasm to do offers.
Regarding freer commerce with the EU: “The actual concern is that it’d foster a a lot stronger relationship between the EU and Brazil quite than between the EU and Mercosur as an entire,” says Argentinian economist Riccardo Carciofi, cautioning that this might spill over into additional nationwide discrepancies in bargaining energy in the direction of different commerce companions.
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Mitigation choices
Aside from commerce retaliation, nations and areas produce other choices to try to mitigate Trump’s commerce onslaught: They can do commerce offers with one another, for instance, or agree workarounds on the World Trade Organization to uphold the established guidelines of worldwide commerce — even when the U.S. now not needs to.
For the EU and Latin America, ratifying the Mercosur deal would open up necessary export markets. But with France main a rearguard motion to kill the pact, that’s under no circumstances a slam dunk — and China in any case knocked Europe off the highest spot as Mercosur’s high buying and selling associate years in the past.
The U.Ok., in the meantime, lately joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a 12-nation group that features Canada and Japan. Work is beneath option to arrange a brand new CPTPP secretariat to coordinate on Trump’s commerce threats. The U.Ok. and EU additionally need to ramp up commerce talks with India — though offers look difficult. As effectively as refreshing its Mexico deal, Brussels needs to speak to Indonesia and Malaysia too.
The U.Ok. has dedicated to resetting relations with the EU after a protracted post-Brexit stalemate, together with plans for a veterinary settlement to easy the circulation of commerce. Ministers have additionally hinted at nearer alignment on chemical substances and mutual recognition of {qualifications}. While probably helpful for U.Ok.-EU commerce, nearer alignment with EU guidelines may undermine the U.Ok.’s negotiating leverage in any commerce talks with the U.S.
As nations search to parry Trump’s commerce thrusts, dispute filings are certain to pile up — and get caught — on the WTO. Its highest appeals courtroom, the Appellate Body, has been out of motion for the reason that first Trump administration blocked judicial appointments. Now, after years of talks on reforming the courtroom, Trump’s return is more likely to once more stall progress. Countries that also need to play by the foundations have, in the meantime, created their very own backup dispute panel.
Taken collectively, the mitigation methods may provide marginal reduction — however could be nowhere close to adequate offset the hit to commerce, progress and costs of a full-scale tariff conflict with the United States. That leaves these on the receiving finish of Trump’s tariff onslaught hoping that his technique may find yourself wanting one thing like theirs: Escalate to de-escalate.
Sue Allan reported from Ottawa, Ari Hawkins, Doug Palmer and Phelim Kine from Washington, Camille Gijs and Jakob Weizman from Brussels, and Graham Lanktree and Sophie Inge from London. Graphics by Paroma Soni.