As many predicted, 47th US president Donald Trump returned to the White House issuing hardline threats towards his country's key trading partners.
In addition to promising to follow through on his post-victory plan to levy a 25% tariff on neighbouring Mexico and Canada, he also proposed a 10% tariff on China beginning as early as February.
The UK and EU were also scrambling to issue a response, with ongoing fears that his threatened 20% blanket tariff on all goods imported into the US could be implemented.
China
After using his first day in office to pursue a part-sale of Chinese social media app TikTok to a US company, with tariffs threats of 100% on all imports if a deal isn’t reached within 75 days, Trump began his second day with plans to introduce a 10% in February.
He said that the rationale behind the move against the Asian nation is based on the fact that “they're sending fentanyl to Mexico and Canada”.
China's foreign ministry spokeswoman Mao Ning promised to "safeguard its national interests".
"We have always believed that trade wars and tariff wars have no winners."
At the annual World Economic Forum in Davos, China's vice premier, Ding Xuexiang, said that he hoped leaders could find “win-win” solutions to trade disputes and said China wanted to expand its imports.
He didn’t mention the US by name, but China currently runs an almost US$1trn global trade surplus and the American trade deficit with China was $367.4 billion in 2022.
Border threats
In addition to declaring a ‘national emergency’ at the US-Mexico border and using executive orders to roll back the rights of immigrants, Trump pledged to follow through on threats against goods moving across the border, vowing to make good on his post-election promise to impose 25% tariffs on Mexican imports from 1 February.
Mexican president Claudia Sheinbaum said it was important to “keep a cool head and refer to signed agreements”. She also asserted that Mexico would “always defend our sovereignty and our independence."
The current status of Mexico’s trade with both the US and Canada is defined in the US-Mexico-Canada Agreement (USMCA), a renegotiation of the previous deal under the first Trump administration that largely benefitted US auto and agri-workers.
Canadian response
Trump’s 25% tariff threat was also levied at Canada, and outgoing prime minister Justin Trudeau said that the nation would respond “robustly”:
“If there are unfair tariffs, we will respond robustly and we will be there to support Canadians and protect our interests.”
Noting the accusations levied by Trump in November when he first made tariff pledges against neighbouring countries, he said that Canada had “already acted to address the concerns raised by the president about border security with an over CA$1bn comprehensive border plan”.
He said this was despite “less than 1% of fentanyl and illegal immigrants that enter the US come from Canada”.
Referring to the existing balance of trade between the two nations, he said that Canada is the only one of the US’ top 5 trading partners with which the nation runs a manufacturing trade surplus.
“Canada buys more goods made by Americans than China, Japan and Germany combined,” he said.
EU stance
Another bloc running a trade surplus with the US, and therefore potentially in the crosshairs of Trump tariff pledges, is the EU. Trump never set a date but did reiterate tariff threats unless the bloc buys more US oil.
In response, senior bloc officials stood strong on their belief in global trade and economic cooperation in post-inauguration speeches.
European Commission (EC) president Ursula von der Leyen told delegates at Davos that the global economy would suffer in a “race to the bottom” on trade.
Referring to both the US and China, she also said that “no one’s interest to break the bonds in the global economy.”
EC trade and economic security commissioner Maroš Šefčovič echoed this sentiment in a statement to the European Parliament yesterday, telling MEPs that EU engagement with the new US administration would “remain unwavering” in its commitment to “upholding EU priorities and interests”.
He added that the EU would “continue to support an inclusive, rules-based, multilateral system” as set out in the UN charter.
‘Unclear’ path ahead
Trade minister Douglas Alexander was questioned by the Business and Trade Committee yesterday (21 January), facing questions on how the UK plans to proceed with its trade strategy with the threat of 20% tariffs being levied on its US-bound exports.
Alexander declined to comment on projections of how costly the economic impact of such tariffs would be, should Trump impose tariffs, repeatedly saying that the impact remains “unclear” and claiming that sharing the UK’s future negotiating strategy would not “be in the UK’s national interest”.
It was reported following Trump’s November election victory that Whitehall officials had been tasked with assessing the potential damage of 20% tariffs.
One of the country’s leading trade policy centres, the University of Sussex’s Centre for Inclusive Trade Policy (CITP), placed estimates as high as £22bn.
Ahead of Trump’s inauguration Monday (20 January), it was reported that PM Sir Keir Starmer had convened a working group of senior ministers to brainstorm the best strategy towards negotiating a deal with the US.
Other ‘tools in the toolkit’
However, Alexander went on to suggest that Labour’s broader trade strategy would now deviate from the previous Conservative government’s playbook, which put a “big emphasis” on negotiating free trade agreements (FTAs):
“We’re looking at what are the tools in the toolkit beyond conventional FTAs because we want a quality rather than a quantity approach.”
Previous conservative governments had made progress in negotiating a trade deal with India and the Gulf Cooperation Council (GCC).
At the end of 2024, the current government expressed a desire to continue with this path, announcing a “relaunch” of negotiations with India and with reports of an imminent GCC deal following an Autumn visit to the Gulf by senior trade ministers.
