How high is the threat of a trade war between the US, EU and China. Parsing
The new US President Donald Trump plans to use tariff and non-tariff restrictions in international relations. He is sure that this is necessary to strengthen the country's economy, as well as to achieve political goals as soon as possible, which is confirmed by the recent example with Colombia. However, the effectiveness of the chosen tactics is not always high, it can lead to a sharp aggravation of international relations. How likely is Washington's trade war with the EU and China - in the material of "Izvestia".
History repeating itself
- Donald Trump's election theses indicate his intention to pursue a policy of protectionism. The US can use both tariff and non-tariff restrictions, which he has repeatedly warned both China and friendly EU countries about.
- In 2018, after taking office in his first term, Trump already imposed tariffs on European steel and aluminum of 25% and 10% respectively. The EU responded by imposing new duties on Levi's jeans and Harley-Davidson motorcycles, among others. It was not until 2021 under former US President Joe Biden that this "tariff war" between the US and the EU was suspended, but a final agreement was never signed.
- Ahead of the election in 2024, Trump mentioned the possibility of imposing duties of 10% or 20% on both hostile and friendly countries. He promised not only to reduce the U.S. trade deficit by imposing these restrictions, but also to hit European industry by forcing companies to move production to U.S. territory. The realization of these intentions as stated will inevitably lead to the beginning of a trade conflict.
- The EU was caught off guard by protectionist measures announced by Trump during his first term, and today the bloc is already engaged in a trade war with another major economy - China. The resulting 10% US duties could cut EU exports by around €150 billion a year.
- Trump's return to the White House could also serve as a catalyst for Europeans to increase their economic autonomy. For Germany, however, his election marks the beginning of a very difficult economic period. Indeed, in addition to the domestic structural crisis, the country may face huge foreign trade challenges for which it is unprepared.
Europe's reaction
- The EU sounded the alarm about the economic slowdown even before Trump's election, warning that Europe's "political paralysis" makes it even more vulnerable in a potential trade war with the US. German and French central bank governors Joachim Nagel and Francois Villroy de Galo have highlighted the problem of European economies' resilience to Trump's intentions to impose double-digit duties on imports.
- In words, the EU is ready to "react quickly and toughly" to Washington's likely imposition of new tariffs, and to try to get Trump to the negotiating table and strike a deal to avoid a trade war. However, the current situation is also exacerbated by the EU's dependence on the US for energy and defense.
- Thus, it is likely that the EU may formally respond by imposing duties on some US goods, but for the most part the union will have to give in to Washington's demands.
Search for compromise
- The new US president's policy of threats and intimidation is not only directed at the EU. Trump said he would impose additional 10 percent duties on all imported Chinese goods if Beijing did not take measures to limit the entry of the Chinese opioid drug fentanyl into the United States.
- Chinese authorities were preparing for the worst-case scenario, namely the immediate imposition of duties and tariff restrictions immediately after Donald Trump's inauguration in the United States, but they got a reprieve. So far, instead of the previously promised restrictions, Trump has ordered an investigation and a report on the state of trade between the two countries Against this backdrop , China's hopes grew for the likelihood of negotiations and a deal to avert a trade war between the countries.
- Trump's softer-than-expected "opening gambit" on China followed other positive signals. Chinese leader Xi Jinping sent the highest-ranking official to the US inauguration, namely Vice President Han Zheng, who also met with the US business elite, including Trump confidant Elon Musk. Xi and Trump had also already had a phone conversation the weekend before the inauguration, which the US president described as very fruitful.
- After a trade war during Trump's first term, some of China's trade with the US was diverted through third countries to avoid tariffs. U.S. officials are now expected to report their findings following that experience on the implementation of new duties on April 1.
- In the meantime, it is too early for confidence that a trade conflict can be averted. Last term, Trump seemed more open to making deals, but his administration was filled with "China hawks" (politicians fiercely determined to tighten relations with the PRC).
- Now Trump and his team are giving ambiguous signals to China. On the one hand, they are planning a summit meeting, calling for the Ukrainian conflict to be resolved together, and giving TikTok a second chance to continue operating on American soil. On the other hand, as with other countries, the new US administration intends to seek more favorable economic cooperation through threats and sanctions. However, the interconnectedness of the two economies is now quite high, so there is a chance that the parties will seek to find compromises.
- Recently, Trump has already discussed with his advisers the possibility of imposing duties of 60% on imports from China. In turn, China, unlike European countries, is preparing not to fulfill all the ultimatums of the new American president, but to look for workarounds in order to suffer as little as possible from US protectionism. Thus, Beijing is considering plans to reduce tariffs, introduce relaxations for Chinese visas, attract Chinese investment and other incentives for U.S. allies in Europe and Asia.
Consequences of threats to Russian Federation
- Trump's aggressive policies are also directed against Moscow. He threatened Russia with new sanctions and duties on Russian exports if Moscow does not agree to a deal to resolve the military conflict in Ukraine soon. However, he noted that he does not want to harm Russia and loves the Russian people, and he has always had good relations with the country's President Vladimir Putin.
- The volume of trade between Russia and the United States in May increased to $487 million, which is 1.5 times more than the previous month. This figure also became the highest since May 2023. However, all the same, economic cooperation between Moscow and Washington has been almost completely suspended. Thus, the effectiveness of American threats is extremely low.
- Russia does not intend to give in to blackmail. Trump's latest threats against Russia contain nothing new. Moscow is ready for an equal and respectful dialog with the administration of the new US president. However, there have been no signals from the White House about the desire to start it.
Global sanctions policy
- Last week almost saw the first major economic conflict after Trump's arrival. On Jan. 26, two U.S. military transport planes were supposed to fly a group of deported illegal immigrants from California to Colombia. However, Colombian President Gustavo Petro ordered them to refuse to land.
- Trump said he was imposing 25 percent duties on all imports from Colombia, including the Latin American country's main exports (coffee and flowers) and visa sanctions against the Colombian leadership. Petro responded that Colombia would impose the same duties on U.S. imports.
- However, late in the evening of January 26, the White House released a statement claiming that Colombia had backed down and therefore no duties and sanctions would be imposed. Meanwhile, decrees on duties and sanctions are ready, according to the statement, and will be signed if Colombia refuses to honor the agreement. Airplanes with migrants successfully landed at their destination.
- This case proved that Trump intends to actively use economic leverage to achieve his foreign policy goals. The likelihood that the US will start a trade war with several countries or even regions is high, but it depends on the willingness and ability of the parties to reach an agreement.
In preparing the material, Izvestia spoke with:
Alexander Razuvaev, economist, member of the supervisory board of the Guild of Financial Analysts and Risk Managers;
Yevgeny Goldfayn, honored economist of Russia.
Переведено сервисом «Яндекс Переводчик»
