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- One Trouble, Seven Answers: What countries around the world will object to Trump's tariffs
One Trouble, Seven Answers: What countries around the world will object to Trump's tariffs
In early February, US President Donald Trump is expected to announce the imposition of duties against a whole group of countries, which may well include most of the world's nations. The scale of the trade war is expected to be unprecedented at least since World War II. Virtually all stakeholders are thinking about countermeasures, which can be divided into three types: trying to somehow butter America up, accepting counter tariffs or strengthening ties with other countries. What the major powers and economic blocs will do in response to Trump's tariffs and how it may turn out - in Izvestia's article.
India: buy more whiskey and steel
This week, Bloomberg reported that the Indian government has sketched out several scenarios to prevent or reduce the damage from U.S. duties - if Donald Trump's threats are realized. India has a fairly large trade surplus with the U.S.: $35.3 billion, so there is some serious money at stake.
Among the options being discussed, the government has allowed the purchase of large volumes of whiskey, steel and oil from the US. In addition, some import tariffs may be reduced. Lists of likely goods are already being compiled: the same whiskey (bourbon) and other agricultural products, such as pecans. There is also a somewhat exotic but elegant proposal: to reduce duties on goods imported from US states that are politically important to the Republican Party. At the same time, India is going to bring back 18,000 Indian illegal immigrants working in the United States to appease the Trump administration.
Whiskey barrels
However, in certain scenarios, India even expects to benefit. For example, electronics, high-tech machinery, textiles, footwear and chemicals are all sectors of the national economy that would benefit if the US imposes higher tariffs on China and restrictions on access to advanced technology. In addition, across-the-board U.S. duties in the range of 10-20% would help boost auto components and metals exports from India.
Finally, the national oil ministry has explicitly confirmed that Indian energy companies intend to increase oil and gas imports from the US in line with Trump's wishes. This may not be good news for Russian exporters, who have relied heavily on Indian purchases of black gold over the past year and a half or two years.
EU: every man for himself
The EU is now on the cutting edge of a likely trade war. The bloc's trade with the US stands at €1.54 trillion. And while the US is in surplus on services, the opposite is true for goods. Nevertheless, Trump is emphasizing goods, as one of his campaign promises was to revitalize American industry.
This is especially true for auto manufacturing, which is already struggling, given the hard-fought transition to electric cars and competition with the Chinese. The effect could be devastating. Especially if duties against the EU are taken together with tariffs against China, in which case Chinese goods will simply overwhelm the European market.
Production of Smart cars at the facility of China's Geely
What is planned to be done in response? There are no specifics yet. The leaders of France and Germany met this week to discuss possible countermeasures. However, there is no agreement behind the streamlined statements after the meeting. Germany expects to get some form of relief from the U.S. side. France, on the other hand, threatens retaliatory tariffs.
In this situation, a conciliatory gesture was offered by Ursula von der Leyen, President of the European Commission, who said that the EC could close its needs in liquefied natural gas (LNG) at the expense of supplies from the United States. Increased purchases from America - at the expense of Russia's current 21.5 billion cubic meters per year - should, she suggested, satisfy the American administration, which wants to ensure privileged conditions for its hydrocarbon producers. At the same time, it is openly admitted that the EU will lose from an economic point of view, as American gas is more expensive. Technically, it will be difficult to realize this; it will probably be necessary to create a strategic reserve of LNG for purchases from the U.S., which will require additional financial injections.
Transport vessel carrying liquefied natural gas
Some countries are counting on special relations with the US based on personal contacts. Italy and Hungary, whose leaders are on short shrift with Trump, can expect significant indulgences if the duties do go ahead. This is especially true for Italy, which has a lot to lose: it ships $68 billion worth of goods to the U.S. annually. And it is not only luxury goods, but also high-tech products. It is quite possible to expect that special conditions will be granted to the above countries. The Trump administration is in principle more comfortable working with individual states (especially those ruled by loyal leaders) than with the bureaucracy in Brussels.
China: a tough response is doubtful
The new U.S. administration allows for the imposition of duties of 60% on all goods and services from China - in addition to those already in place. In addition, Congress could revoke China's preferred trading partner status, which would allow any tariffs to be imposed very quickly. For China, which has a huge trade surplus with the U.S. (although the volumes have shrunk somewhat compared to, say, 10 years ago), this could be painful and lead to a 20% drop in exports. In a worst-case scenario, the country's GDP growth could be expected to slow by about 2.5%.
Export of goods from China
Despite the tough rhetoric, it is not yet fully clear how China will decide to respond to the US tariff aggression. The most likely scenario would be restrictions on U.S. agricultural products (not much in terms of value, but unpleasant for American farmers, who are usually Trump and Republican voters), as well as artificial weakening of the yuan. However, the latter move will hit other PRC competitors, including Europe, to a greater extent and may trigger a new round of currency and trade wars.
Canada and Mexico: an eye for an eye?
For Canada, which is the main US trading partner, duties of 25% have been proposed. For the U.S.'s northern neighbors, this will be a heavy blow that could instantly lead to the loss of tens, if not hundreds of billions of dollars. The country's outgoing prime minister, Justin Trudeau, is proposing symmetrical retaliatory measures. However, not all provincial governors agree with such actions, as for many of them such decisions will only make things worse.
As for Mexico, President Claudia Sheinbaum has thought about withdrawing the preferences traditionally enjoyed by American businesses in this country. In addition, there is an option to strengthen cooperation with China, which has long been looking for opportunities to enter Latin America more actively in terms of investment. The latter decision, however, would be a rather risky endeavor.
However, in the case of the U.S. North American neighbors, the imposition of duties is more a measure of political pressure than an attempt to achieve a competitive advantage in the economy. Canada is expected in Washington to control drugs, primarily fentanyl, more strictly. Mexico, on the other hand, must stop the flow of migrants going to the United States. It is not that difficult to reach an agreement with both. Especially since Canada is likely to change its ruling party this year. If conservatives win the election, Trump, who favors them, will almost certainly make major concessions.
Migrants from Mexico
Whatever countermeasures and attempts to negotiate on the part of U.S. counterparties, there is little doubt that the duties will cause significant damage to global trade. Moreover, they will lead to further fragmentation not only of the global economy as a whole, but also of some regional blocs. The logic of "comparative advantage" recedes before the logic of protecting and supporting one's own population and industry.
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