The PresidentAllies and markets are apprehensive about what some worry might turn into a global trade war as a result of Donald Trump’s broad tariffs announced over the weekend and the threat of more punitive actions against some of Washington’s closest trading partners.
Economists predict that consumers worldwide will experience price increases as supply chains that transport goods between nations become more costly and subject to political risk, despite the fact that the majority of world governments have been cautious about the levies against Canada, Mexico, and China.
A candidate for prime minister of Canada, Chrystia Freeland, said on Monday on MSNBC’s Morning Joe that Trump’s actions were a massive act of self-harm because they would also impact American exporters who are attempting to sell goods to Canada.
In actuality, she added, these tariffs are being placed for absolutely no justification. We are furious with you and believe it to be completely insane.
However, most of America’s friends have responded more mildly than Freeland, which is normal for leaders who are familiar with the president’s negotiation style, out of concern that they could also be the target of the Trump administration’s tariffs.
The European Union stated that it laments the levies that Trump has levied thus far and that it would react forcefully if he were to slap tariffs on it.Japan stated that it would thoroughly investigate the possible effects on international trade.
For the next four years, independent specialists who are not required to work directly with Trump have provided more straightforward evaluations.
Susannah Streeter, head of money and markets at the British financial platform Hargreaves Lansdown, stated in an email on Monday that what was formerly thought to be Trump’s bluster and bluff has become the harsh truth. It has become evident that Trump’s strategy is to sow the seeds of instability and disorder in order to secure domestic electoral victories.
Promises kept
Trump’s tariffs, which are scheduled to go into effect on Tuesday, are not shocking considering that the president hinted at them several times throughout the 2024 campaign.
He has always used trade deficits—when nations sell more to the United States than they purchase—as justification for enforcing trade restrictions. He has also frequently brought up the illegal immigration crisis at the southern border and the flow of illegal fentanyl, which has killed tens of thousands of Americans, as additional justifications.
Rather than being a viable policy alternative, several of the president’s supporters, such as Treasury Secretary Scott Bessent, had predicted that tariffs would mostly be employed as a negotiation strategy to secure advantageous agreements.
In a letter to investors in his Key Square Group hedge fund last year, Bessent stated that the tariff pistol would always be loaded and on the table but infrequently used.
But Trump delivered on his pledge this weekend, first declaring on Saturday that a 10% tariff will be applied on Chinese goods and a 25% levy on goods from Canada and Mexico.
Other regions of the world, including the European Union, are also preparing for similar levies, even though Mexican President Claudia Sheinbaums announced Monday that the planned tariffs had been put on pause for a month following a discussion with Trump.
Trump lamented that the 27-nation group did not take our vehicles, our agriculture products, or nearly anything else, while we took everything from them. He told reporters in Maryland on Sunday that the European Union’s trade deficit is an atrocity.
European response
A spokesman for the organization said in a statement on Monday that the EU would strongly respond to any trading partner that unfairly or arbitrarily imposes taxes on EU exports.
Julian Hinz, a research director for trade policy at the Kiel Institute for the World Economy, a German think tank, stated that the Trump administration seemed to be actually carrying out the threats.
Nevertheless, Europe is scarcely united on this matter. Right-wing populists, many of whom share Trump’s distaste for the global trade system and blame it, along with immigration, for the loss of employment in manufacturing and other industries, have put pressure on the bloc’s established mainstream political parties.
On Sunday, however, German Chancellor Olaf Scholz praised globalization, stating that it has been a fantastic success story that has brought wealth to all of us and that it is crucial that we stop dividing the world with many customs hurdles.
In a statement released that same day, the German automaker Volkswagen stated that it was depending on positive negotiations between the trading partners to maintain economic stability and planning security as well as to prevent a trade war.
Asian markets quake
Investors expressed concerns about non-American automakers even as the firm worked to defuse the situation.
When VW’s stock fell more than 5% Giants from South Korea and Japan, including Toyota, Nissan, and Honda, suffered a decline in their stock values on Monday as well. Investors were focusing on these companies’ Mexican auto manufacturers that export to the United States.
Additionally, Taiwan’s Ministry of Economic Affairs announced Monday that it will assist businesses impacted by the U.S. tariffs, including by offering advice on how to relocate to the United States, as many of its semiconductor and electronics companies have factories in both Mexico and China.
Even though South Korea and Japan, two Asian allies of the United States, have not been subject to tariffs, they are nonetheless vulnerable to the impact of these taxes on their multinational firms.
Japanese Prime Minister Shigeru Ishiba warned lawmakers on Monday that they must thoroughly examine the rationale behind this decision and the potential consequences. However, Mr. Trump frequently employs the word “fair.” We’ll take a close look at how this benefits US national interests and how it might impact free trade internationally.
Worse than expected
According to David Henig, director of the European Centre For International Political Economy, a Brussels-based think tank, Shigeru’s subdued response was similar to that of his European counterparts, and the subdued collective response of America’s longstanding allies may conceal the fact that Trump’s actions are worse than anticipated.
According to Henig, European powers would have anticipated Trump’s desire for accords. Now, though, it seems like he’s just saying, “I want tariffs.” More tariffs are preferable. The remainder of the world, which is accustomed to trading, is therefore left with significant problems.
According to Henig, Trump’s readiness to move against Washington’s northern neighbor is what is most concerning in the corridors of power in Europe.
“Wait a second, the United States is going up against Canada?” many are asking. He went on. To be honest, everyone would appear to be in danger if Canada were subject to heavy tariffs. It doesn’t seem to make sense or have any rhyme.
There today, here tomorrow
Given that the Trump administration’s tariffs have already hurt the value of assets from Mexico and Canada, America’s allies in Europe and Asia may have been glued to financial markets on Monday.
Early Monday trading saw a decline in both the Canadian dollar and the Mexican peso, with the latter hitting its lowest level vs the US dollar since 2003.
China has been more circumspect, despite Canadian Prime Minister Justin Trudeau having already declared retaliatory duties against a variety of American commodities.
Although Beijing responded quickly to Trump’s tariffs during his first term, it has not yet said how it intends to respond this time, other than stating that it would sue the World Trade Organization and implement all necessary countermeasures.
However, the instability might present a chance for Chinese President Xi Jinping, who is working to revive his nation’s flagging economy.
Craig Singleton, senior China scholar at the Foundation for Defense of Democracies, a Washington-based think tank, stated in an email that China will portray Trump’s tariffs as unilateral and destabilizing, positioning China as a supporter of multilateralism and international economic stability.
Xi might take advantage of the opportunity to strengthen ties with developing nations and establish China as a rival to US leadership.