Countries around the world are nervously waiting to see if — and how — Donald Trump follows through on his drastic tariff threats after he’s sworn in as U.S. president on Monday.
If Trump does all he’s said he’ll do, he could saddle U.S. firms with an estimated $640 billion in import costs and drive up domestic inflation, as his promised 60 percent tariffs on goods from China, 25 percent on Canada and Mexico, and universal flat tariffs of up to 20 percent on other nations bite.
Unlike in 2017, when many governments were blindsided by Trump’s aggressive trade actions, leaders in Ottawa, Brussels and Beijing have been hunkering down and wargaming how to fend off the economic shockwave that the heavy duties on U.S. rivals and allies alike would send rippling around the globe.
They’re also drawing up plans to retaliate or give Trump a sweetheart deal to make them go away.
NORTH AMERICA
Canada
— Sue Allan
Trump’s threats
Trump has vowed that slapping Canada with 25 percent tariffs will be a first-day priority. “As one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders,” he announced on Truth Social in November.
The retaliation playbook
The threats have consumed Ottawa, which is saying a lot in a town turned upside down by news that Prime Minister Justin Trudeau is ready to resign as soon as his Liberal Party can find his replacement.
Despite his self-inflicted lame-duck status, Trudeau is using time on U.S. networks to warn Canada’s neighbors that their pocketbooks are at risk of becoming collateral damage in Trump’s trade war. “Anything an American president does to hurt the Canadian economy will also hurt American consumers and American workers and American growth,” he told CNN’s Jake Tapper.
Ottawa has a set of retaliatory measures set to drop on Monday if Trump takes action. There is talk of Canada leveraging energy exports in its retaliatory response. “Everything is on the table,” the prime minister said after gathering with his provincial counterparts in Ottawa.
The prime minister likes to point out that Canada is the top export partner to about 35 states. “Anything that thickens the border between us ends up costing American citizens and American jobs,” he said earlier this month.
At the outset of 2024, Trudeau enlisted Canada’s U.S. ambassador and top ministers to travel across the U.S. meeting with lawmakers, governors and business leaders in a bid to “Trump-proof” the bilateral relationship. They tracked their outreach on spreadsheets — West Virginia, South Carolina, Texas, Arizona and beyond — and insisted they were ready for battle.
How will it play out?
Trudeau insists that Trump is using threats to annex Canada to distract from any conversation about his tariffs.
Canada’s provincial leaders have also rallied in response to Trump — though admittedly not always together. Ontario Premier Doug Ford showed up on Fox News to announce that Canada is not for sale.
Alberta Premier Danielle Smith recently found her way to Mar-a-Lago where she says she had a constructive conversation with Trump. “I emphasized the mutual importance of the U.S.-Canadian energy relationship, and specifically, how hundreds of thousands of American jobs are supported by energy exports from Alberta,” she said in a statement. Smith does not want Alberta oil and gas included in Canada’s retaliation measures.
All of Canada’s provincial leaders are expected to descend on Washington on Feb. 12 for a full-court press.
Mexico
— Ari Hawkins and Doug Palmer
Trump’s threats
Donald Trump has focused his tariff threats in particular on Mexico and threatened to impose a 25 percent tariff on the country as well as Canada if the United States’ two North American neighbors fail to crack down on irregular migration and the flow of fentanyl from their countries.
Trump has also complained repeatedly about auto imports, accusing Mexico of being a back door for China, and floated 200 percent tariffs or higher on vehicles from south of the border.
The retaliation playbook
Newly-elected Mexican President Claudia Sheinbaum has sharply pushed back on the president-elect’s threats and vowed to retaliate in a letter she sent to Trump in November, which underscored the potential economic consequences for both countries.
“For every tariff, there will be a response in kind,” Sheinbaum wrote. Mexican officials are eyeing the agricultural sector for potential retaliation — and are planning a range of responses based on whether or not the Trump administration follows through on his most aggressive proposals.
Mexican officials tell POLITICO that, despite the back-and-forth, they are cautiously optimistic that Sheinbaum’s defiant response to Trump’s threats could garner his respect, and help facilitate the type of (at times) warm relationship Trump shared with former President Andrés Manuel López Obrador.
But the Mexican government has more recently tried to present itself as committed to combating illegal drug trafficking and has implemented crackdowns after Trump’s threat. It also says it has taken steps to curb irregular migration and wants to work with the United States to diversify supply chains in both countries out of China.
How will it play out?
Sheinbaum has spoken to Trump at least twice since the election to stress the value of collaboration on trade concerns.
Economy Minister Marcelo Ebrard has expressed confidence that Mexico will find a solution that persuades Trump not to follow through on his threat. Ebrard noted that Trump threatened similar tariffs during his first term but did not impose them after announcing that Mexico had taken sufficient action to address his concerns.
The U.S. trade deficit with Mexico has skyrocketed in recent years, underscoring the economic risks to both countries from a trade war. Trade data released in February will most likely show it reached a record level of around $170 billion, despite Trump negotiating a new trade agreement during his first term to replace the decades-old North American Free Trade Agreement.
It has also, however, drawn the scrutiny of U.S. politicians, particularly Trump, who believes trade deficits are a sign of economic weakness. And it will raise the pressure on Mexico in the upcoming year six review of the U.S.-Mexico-Canada Agreement to agree to a number of new U.S. demands. Those could include new limits on Chinese investment in Mexico, particularly in key sectors like autos.
CHINA
— Phelim Kine
Trump’s threats
Trump has repeatedly floated a tariff of 60 percent — and possibly even higher — on all Chinese goods imported into the United States, telling Fox News host Maria Bartiromo last year, “I’m not looking to hurt China. I want to get along with China, but they’ve really taken advantage of our country.”
The president-elect also said in an October interview with the Wall Street Journal that if China invaded Taiwan, “I’m going to tax you at 150 percent to 200 percent.”
And in a post-election post on Truth Social, he warned he would raise tariffs on Chinese imports by 10 percent until Beijing stopped the flow of Chinese-produced fentanyl into the U.S.
Trump’s campaign platform, meanwhile, states he would revoke China’s “most favored nation” trade status — a move that would open the door to tariffs of up to 100 percent.
The retaliation playbook
Unlike with Mexico and Canada, there has been far less public trade diplomacy between Trump and Chinese leaders, although the president-elect had a “very good call” with President Xi Jinping on Friday, he said in a post on Truth Social, that included talk of “balancing trade, fentanyl and TikTok and many other subjects.”
The Chinese government has been cagey about how it will respond if Trump follows through on his steep tariff threats. China “will firmly safeguard its sovereignty, security and development interests,” if Trump violates international trade rules, Chinese embassy spokesperson Liu Pengyu told POLITICO last week.
That may mean a replay of China’s response to tariffs that the first Trump administration imposed on Chinese imports in 2018 — a round of retaliatory tariffs targeting the U.S. agricultural sector that cost it $10 billion in lost export revenue.
That ultimately prompted negotiations which led to the 2020 signing of the U.S. China Phase One trade deal, which Trump then hailed “a momentous step … toward a future of fair and reciprocal trade.” Beijing has, however, failed to deliver on key commitments, including buying U.S. goods and services, regulatory changes to speed imports of genetically modified agricultural products, and patent approval for U.S. pharmaceutical products.
How will it play out?
Beijing’s response may hinge on the degree to which it feels “singled out” for trade punishment, said Greta Peich, the former general counsel of the Office of the United States Trade Representative. “China is less likely to be aggressive if [Trump’s] trade action is impacting all trade,” Peisch added. Beijing likely wants to avoid an escalatory trade war as it tries to maximize exports to stimulate its sputtering economy.
That may tempt Beijing to respond by “impeding the Chinese operations of some U.S. companies,” rather than tit-for-tat tariffs, said Peter Harrell, former senior director for international economics in the Biden administration.
Beijing may even try to stop a new trade war before it starts by “preemptively making an offer to Trump of a deal to avoid new tariffs … or putting a trade offer on the table early to try to head off an escalation,” Harrell added.
EUROPE
European Union
— Camille Gijs
Trump’s threats
Trump has vented his fury at the European Union for not buying enough American autos or farm produce and is said to be “obsessed” by the number of German cars on the streets of Manhattan. But, since his Nov. 5 election triumph, he hasn’t directly threatened anything beyond universal tariffs. What he has done is stake a stunning claim to Greenland, coveting the Danish protectorate’s mineral riches and seeking to project power northward as the melting Arctic ice opens up new trade routes.
The retaliation playbook
Trade tensions between Washington and Brussels run deep, with the two sides unable to take advantage of friendlier ties under Joe Biden to resolve a festering dispute over U.S. steel and aluminum tariffs. A truce on the EU’s own retaliatory tariffs will lapse at the end of March — and Brussels hopes that will force Trump back to the negotiating table.
Ursula von der Leyen, the president of the EU executive, has already proposed buying more U.S. liquefied natural gas to even out the trade balance. But, in case things get nasty, the EU can resort to its growing arsenal of trade defense tools. Aside from classic subsidy and dumping investigations, its anti-coercion instrument — developed in response to a first-term trade fight with Trump — empowers the bloc to impose export controls or duties. This trade “bazooka” could be used in response to any threat by Trump to trigger tariffs if, for instance, the EU declines to join the U.S. in putting up trade barriers against China.
Another option is for the EU to impose similar tariffs to the ones imposed by Trump on goods it doesn’t depend on, such as Harley-Davidson motorbikes, Jack Daniel’s bourbon or Levi’s jeans. “Let’s not be naive,” former European Commission official Ignacio García Bercero told POLITICO. “Because if the negotiations fail and if the United States feels that we don’t have a credible retaliation option, then we are not going to go anywhere.”
In the meantime, the EU is pushing to diversify its trading relationships, overhauling its existing accord with Mexico on Friday to expand opportunities in services, strengthen supply chains and bolster investment protections. That follows a long-awaited trade accord with the Mercosur bloc of South American nations sealed in December.
How will it play out?
The EU’s biggest countries — Germany, France, Italy and Ireland — might be at greater risk of incurring Trump’s wrath as they have wide trade surpluses with the United States.
Never a fan of Brussels, Trump is expected to prefer dealing with countries bilaterally, and that could put fragile EU unity to the test. Recent visits by Italy’s Giorgia Meloni and Hungary’s Viktor Orban to Mar-a-Lago show that several countries are already trying to curry favor with Trump directly — and dodge his tariff onslaught.
Brussels finds itself in a dilemma over whether to align with Washington and resist China’s $1 trillion export overhang. If it does, its approach would diverge from that of the U.S., according to García Bercero, now at the Bruegel think tank: “If there’s a willingness to align more closely on how to deal with Chinese overcapacity, each side will be doing it its own way. In the EU, we will mostly focus on trade defense, including more safeguards.”
UK
— Graham Lanktree and Sophie Inge
Trump’s threats
Trump hasn’t threatened the U.K. specifically like he has China, Canada and Mexico. Still, an economic hit to those nations would be felt in London, with tariffs on Beijing contributing to a shift in supply chains forecast to slow U.K. trade with its sixth largest economic partner long-term.
The retaliation playbook
Whitehall officials are desperate to avoid getting in the middle of an escalating tariff war between the U.S. and China but will have to rely more on diplomacy than economic might post-Brexit to avoid being caught in the crossfire.
Nevertheless, the Labour government has dipped into the U.K.’s retaliation playbook from the first Trump administration and could immediately strike back with duties on those familiar targets: Harleys, Jack Daniel’s and Levi’s.
Carrots to sweeten a deal for the U.K. to avoid duties are more useful, trade experts say, like aligning with the U.S. on its hefty duties against Beijing by opening an investigation into state subsidies for China’s electric vehicle industry and buying more American oil and gas.
How will it play out?
British Prime Minister Keir Starmer wants talks for a U.K.-U.S. trade deal with Trump’s team to get going in the weeks ahead, he told POLITICO in an interview Thursday. The PM and Trump have already discussed meeting in the U.S. next month.
“I have been clear that we would like to have discussions about a trade deal with the U.S.,” Starmer said.
Ministers are reportedly now increasingly confident that Trump won’t immediately slap tariffs on U.K. exports. But worries linger: “Any G7 trade minister like myself would be concerned about the talk of tariffs,” U.K. Business and Trade Secretary Jonathan Reynolds told POLITICO last November.
While he’s likely to go after other countries first, British ministers are still preparing for the worst, with one senior trade official pointing out that “there is some low-hanging fruit that we might be vulnerable to.” They wouldn’t get into specifics, but the U.K.’s automotive and pharmaceutical sectors are often brought up by trade experts as pressure points with supply chains in China.
Negotiating a U.K.-U.S. trade deal with Trump would still see Labour draw red lines on food standards, but No. 10 says Starmer has spoken at Cabinet about “his determination to pursue a partnership with the US for the 21st century, which would protect security, advance our economic growth and leverage the opportunity of new technologies.” That sounds a lot like he has a security and tech pact in mind.
LATIN AMERICA
— Jakob Weizman
Trump’s threats
Like Europe, Latin America has painful memories of a dispute over the steel and aluminum duties Trump imposed in his first term. But, with the U.S. enjoying a trade surplus with South and Central America, the main concern there is that Trump’s punitive tariffs against Beijing could unleash a flood of redirected Chinese exports.
The retaliation playbook
South America lacks the depth of trade cooperation that — still — exists between the U.S., Canada and Mexico in their common free-trade area, or in the European Union for that matter. And, whereas Argentina’s right-wing populist President Javier Milei was the first foreign leader to pay homage to Trump at Mar-a-Lago on his election victory, Luiz Inácio Lula da Silva’s Brazil has fought running legal battles with Trump crony Elon Musk and his X social media platform.
Both are members of the Mercosur trade bloc, which includes Paraguay and Uruguay, and which finally sealed a trade deal with the European Union in December after 25 years of trying. Importantly, that deal put up some preemptive protection against a potential flood of Chinese electric vehicle imports by establishing safeguards — effectively a trigger to impose higher tariffs once a critical import threshold is hit.
Yet a lack of unity among the bloc’s members might make it difficult to maintain a common front in the face of trade stress with the U.S. and any further expansion into the region by China, which is already investing in local EV production. That’s especially so with Brazil dominating Mercosur and having a seat at the table in the BRICS emerging markets forum.
How will it play out?
Trump’s attempt to contain China’s international expansion may come up short, and it’s likely that Latin America will end up being more of a bone of contention between Brussels and Beijing. The region’s raw materials and rising integration into global trade networks make it a geopolitical battleground, with China holding the high cards and Europe held back by its restrictive rules of engagement and a lack of enthusiasm to do deals.
Regarding freer trade with the EU: “The real concern is that it might foster a much stronger relationship between the EU and Brazil rather than between the EU and Mercosur as a whole,” says Argentinian economist Riccardo Carciofi, cautioning that this could spill over into further national discrepancies in bargaining power towards other trade partners.
Mitigation options
Aside from trade retaliation, countries and regions have other options to try and mitigate Trump’s trade onslaught: They can do trade deals with each other, for example, or agree workarounds at the World Trade Organization to uphold the established rules of international trade — even if the U.S. no longer wants to.
For the EU and Latin America, ratifying the Mercosur deal would open up important export markets. But with France leading a rearguard action to kill the pact, that is by no means a slam dunk — and China in any case knocked Europe off the top spot as Mercosur’s top trading partner years ago.
The U.K., meanwhile, recently joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a 12-nation group that includes Canada and Japan. Work is under way to set up a new CPTPP secretariat to coordinate on Trump’s trade threats. The U.K. and EU also want to ramp up trade talks with India — although deals look challenging. As well as refreshing its Mexico deal, Brussels wants to talk to Indonesia and Malaysia too.
The U.K. has committed to resetting relations with the EU after a long post-Brexit stalemate, including plans for a veterinary agreement to smooth the flow of trade. Ministers have also hinted at closer alignment on chemicals and mutual recognition of qualifications. While potentially beneficial for U.K.-EU trade, closer alignment with EU rules could undermine the U.K.’s negotiating leverage in any trade talks with the U.S.
As countries seek to parry Trump’s trade thrusts, dispute filings are sure to pile up — and get stuck — at the WTO. Its highest appeals court, the Appellate Body, has been out of action since the first Trump administration blocked judicial appointments. Now, after years of talks on reforming the court, Trump’s return is likely to again stall progress. Countries that still want to play by the rules have, meanwhile, created their own backup dispute panel.
Taken together, the mitigation strategies might offer marginal relief — but would be nowhere near sufficient offset the hit to trade, growth and prices of a full-scale tariff war with the United States. That leaves those on the receiving end of Trump’s tariff onslaught hoping that his strategy might end up looking something like theirs: Escalate to de-escalate.
Sue Allan reported from Ottawa, Ari Hawkins, Doug Palmer and Phelim Kine from Washington, Camille Gijs and Jakob Weizman from Brussels, and Graham Lanktree and Sophie Inge from London. Graphics by Paroma Soni.
