President Donald Trump’s sweeping tariffs announced over the weekend — as well as the promise of more punishing measures leveled against some of Washington’s closest trading partners— have alarmed allies and spooked markets about what some fear may spiral into a global trade war.
While most world leaders have been circumspect about the levies against Canada, Mexico and China, economists say that consumers across the world will face spiraling prices as the supply chains that move goods among countries become more exposed to political risk and therefore costlier.
Chrystia Freeland, a contender to be Canada’s prime minister, told MSNBC’s “Morning Joe” on Monday that Trump’ actions were a “colossal act of self-harm,” because the measures would also hurt American exporters trying to sell goods to Canada.
“The fact is, these tariffs are being imposed truly for utterly no reason,” she said. “We think that it is utterly crazy and we’re also really, really angry at you.”
But responses from most of America’s allies, fearing that they might also be the focus of the Trump administration’s tariffs, have been milder than that of Freeland, although that’s not uncommon for leaders with experience of the president’s negotiating style.
President Donald Trump speak to reporters at Joint Base Andrews in Maryland on Sunday night.Kevin Lamarque / Reuters
The European Union said that it would “respond firmly” if Trump hits it with tariffs and that it “regrets” the duties he has imposed so far. Japan said it would “carefully examine” the potential impact on global trade.
Independent experts — who do not have to directly do business with Trump for the next four years — have been more plainspoken with their analysis.
“What was considered to be bluff and bluster from Trump has turned into cold hard reality,” Susannah Streeter, head of money and markets at the British investment platform Hargreaves Lansdown, said in an email Monday. “It’s become clear that Trump’s way of doing business is to sow seeds of chaos and unpredictability to gain domestic political wins.”
Promises kept
Trump’s tariffs which are set to take effect on Tuesday, are hardly a surprise given that the president repeatedly telegraphed them during the 2024 election campaign.
He has long seen trade deficits — countries selling more to the U.S. than they buy — as amounting to subsidies and has consistently cited them in his attempts to get countries to buy more American goods, while also pointing to the illegal immigration crisis at the southern border and the flow of illicit fentanyl that has killed tens of thousands of Americans, as other reasons for imposing them.
Some of the president’s allies — including Treasury Secretary Scott Bessent — had suggested that tariffs would mainly be used as a negotiating tactic to gain favorable deals, rather than a practical policy option.
“The tariff gun will always be loaded and on the table but rarely discharged,” Bessent had written to investors in his Key Square Group hedge fund last year.
Stores in Canada have put up signs urging customers to buy homemade products. Chris Helgren / Reuters
This weekend, however, Trump made good on his promise, first announcing Saturday a 25% tariff on Canadian and Mexican goods and a 10% tariff on Chinese ones.
While Mexican President Claudia Sheinbaum said Monday that after a conversation with Trump, the planned tariffs had been placed on hold for a month, other parts of the world are also bracing for similar levies, not least the European Union.
The E.U.’s trade deficit is an “atrocity,” Trump told reporters in Maryland on Sunday, lamenting that the 27-nation bloc did not “take our cars, they don’t take our farm products, they take almost nothing, and we take everything from them.”.
European response
The E.U. “would respond firmly to any trading partner that unfairly or arbitrarily imposes tariffs on E.U. goods,” a spokesperson for the bloc said in a statement Monday.
The Trump administration “seems to be really following through with the threats,” said Julian Hinz, a research director for trade policy at the Kiel Institute for the World Economy, a German think tank.
Even so, Europe itself is hardly unified on this issue. The bloc’s traditional mainstream political parties have come under pressure from right-wing populists, many of whom share Trump’s antipathy to the system of global trade that — alongside immigration — they blame for eroding jobs in manufacturing and other industries.
But German Chancellor Olaf Scholz defended globalization Sunday, saying that it “has proven to be a great success story that has created prosperity for us all” and “that’s why it’s important that we don’t divide up the world now with a lot of customs barriers.”
On the same day, German auto giant Volkswagen said in a statement that it was “counting on constructive talks between the trading partners to ensure planning security and economic stability and to avoid a trade conflict.”
Asian markets quake
While the company was seeking to calm the waters, investors signaled their worries about non-American automakers.
As VW’s shares dropped by more than 5% Monday, Japanese and South Korean giants such as Toyota, Nissan and Honda saw their stock prices fall too, with investors eyeing those companies’ Mexican factories that export cars to the U.S.
And in Taiwan, many of whose semiconductor and electronics companies have factories in both Mexico and China, the Ministry of Economic Affairs said Monday that it would help companies affected by the U.S. tariffs, including by providing information on how to relocate to America.
While the U.S.’ Asian allies such as Japan and South Korea have not been hit with tariffs, they are no less at risk from the effects of these levies on their global corporations.
“We have to carefully consider the reasoning behind this decision and what impact it may have,” Japanese Prime Minister Shigeru Ishiba told lawmakers Monday. “At the same time, Mr. Trump often uses the word ‘fair.’ We will carefully examine how this serves the national interests of the United States and also how this may affect global free trade.”
Worse than expected
Shigeru’s muted reaction echoed those of his European counterparts and the mild collective reaction of America’s long-standing allies may mask the reality that Trump’s actions are “worse” than expected, according to David Henig, a director at the European Centre For International Political Economy, a think tank based in Brussels.
European powers “would have expected that Trump wanted deals,” Henig said. “But now he just seems to be saying, ‘I want tariffs. The more tariffs the better.’ And that leaves the rest of the world, which is used to trading, with big issues.”
What is causing most alarm in the European corridors of power is Trump’s willingness to take action against Washington’s northerly neighbor, Henig said.
“People are saying, ‘Hang on a minute, the U.S. is taking on Canada?” he added. “If you’re going to put high tariffs on Canada, then frankly anybody would seem to be under threat. There seems to be no rhyme or reason to it.”
There today, here tomorrow
America’s European and Asian allies may well have been glued to financial markets Monday, with the Trump administration’s tariffs having already stung the value of Mexican and Canadian assets.
The Mexican peso and the Canadian dollar slid in early trading Monday, the latter falling to its lowest value against the U.S. dollar since 2003.
Shipping containers are loaded at the Barcelona port in Spain. Angel Garcia / Bloomberg via Getty Images
Though Canadian Prime Minister Justin Trudeau has already announced retaliatory tariffs against a range of American goods , China has been more restrained.
And while Beijing reacted swiftly to Trump’s tariffs during his first term, this time it has yet to specify how it plans to retaliate apart from saying it would file a lawsuit with the World Trade Organization and enact unspecified “necessary countermeasures.”
Nevertheless, there may be an opportunity in the chaos for Chinese President Xi Jinping — who is trying to right his country’s torpid economy.
“China will frame Trump’s tariffs as unilateral and destabilizing, casting China as a champion of multilateralism and global economic stability,” Craig Singleton, senior China fellow at the Foundation for Defense of Democracies, a think tank in Washington said in an email.
“Xi could exploit the moment to deepen partnerships with emerging markets and position China as an alternative to American leadership.”
