Barely two weeks after returned to the White House, four allies of the United States have caved into the US president’s coercive trade strategy after being and other punitive measures.
and this week promised to shore up security at their US borders to tackle illegal and drug trafficking. They won a on Trump’s wide-ranging , announced last weekend
Colombia, which was also threatened with tariffs and sanctions, quickly U-turned after initially refusing to accept deported migrants from the US. , meanwhile, appears to have made concessions to Trump over the Panama Canal, a critical shipping waterway that connects the Atlantic with the Pacific in Central America.
On the face of it, the US president flexed his muscles and his targets quickly submitted. However, Italian economist Marco Buti thinks strategy is being rolled out “erratically” and has provoked only a limited response from allies.
“What he [Trump] has extracted so far from the threatened countries [Canada and Mexico] as unilateral concessions is largely symbolic,” Buti, a former director-general for economic and financial affairs at the European Commission, told DW.
He said the new border measures promised by Mexico and Canada won’t be enough by themselves to stem the flow of the deadly drug Fentanyl or stop undocumented migrants from entering the US.
Economic costs of tariffs
The economic impact on Trump’s target countries as well as the US from the proposed tariffs has been well documented. Tariffs effectively act as taxes on imported goods, so any new duties will almost certainly cause higher prices for consumers.
“[Trump’s tariffs] are creating economic uncertainty globally and that is going to be very damaging from the point of view of growth and prosperity,” Buti said.
As well as tipping the Canadian and Mexican economies into recession, Trump’s tariff threat is forecast to spike US inflation by more than a percentage point, potentially causing the to hold or raise interest rates.
The tariffs could also disrupt established production supply chains between Canada, the US and Mexico, particularly in the .
Car production in North America is deeply integrated with vehicle parts crossing the borders several times during production. Tariffs at each stage could raise vehicle prices significantly and if that hurts demand, some economists think job losses will be inevitable.
“Trump is very much of the old school,” Rolf Langhammer, a researcher at the Kiel Institute for the World Economy (IfW-Kiel), told DW. “He thinks that tariffs will protect domestic industries and that the revenues from tariffs will allow him to cut taxes.”
But tariffs currently account for just 2% of the US federal government revenues, Langhammer said. That compares to almost 60% for income and corporate taxes.
US allies take pre-emptive steps
Trump’s tariff threats have caused ripples around the world, even forcing some countries to preempt any possible move to put tariffs on their exports.
, which has been singled out by Trump over high trade barriers for US exporters, has cut its own tariffs on multiple products from 13% to 11%, including motorbikes and satellite ground installations. New Delhi this week announced plans to reduce tariffs on more than 30 other products.
South Korea and Japan have said they will buy more energy and other goods from the US, while Thailand says it will increase imports of US agricultural products, including ethane, which is used to make plastics.
As it readies retaliatory measures against threatened Trump tariffs, the is considering using its newly-created Anti-Coercion Instrument (ACI), particularly against US technology firms, the Financial Times reported this week.
ACI was introduced in December to see off attacks on the bloc’s economic interests and allows Brussels to block direct investment or restrict market access.
The EU avoided tariffs on European cars during Trump’s first term after European Commission chief Jean-Claude Juncker struck a deal with the president that saw EU states buy more US and soybeans. But that may not be an option this time.
“I have strong doubts that [making a deal] is going to be enough this time. We can try to negotiate and to have a peaceful approach, but you also have to devise a strategy of retaliation that is credible and hard-hitting,” Buti told DW.
US reputation damaged
Trump’s high-pressure strategy could work in the short term by continuing to force negotiations or achieve trade goals, but its long-term success is uncertain. In a recent blog post, Philip Luck, an economist at the Washington-based Center for International and Strategic Studies, likened the president’s use of coercion to antibiotics.
“They are highly effective in targeting specific threats but when overused can lead to diminishing returns. Just as bacteria develop resistance to antibiotics, countries subject to repeated sanctions will develop immunity by diminishing their exposure to the US market,” Luck warned.
Faced with increasing uncertainty in the trade relationship with the US, many countries as well as the EU are having to look for alternative trade markets to offset the tariff threat.
The Biden administration had pressured Brussels to cut its reliance on , to quell the rise of the Asian power. But with a potential trade war with its closest ally on the horizon, EU policymakers may be forced to U-turn.
Despite the tariff reprieve, Canadian Prime Minister Justin Trudeau held a summit with top business leaders this week aimed at helping the country diversify its trade from the US. His Mexican counterpart, Claudia Sheinbaum, has launched Plan Mexico, again with the target of cutting reliance on major trading partners.
“Everyone is asking now: ‘Is the United States still a credible partner?’” Niclas Poitiers, a research fellow at the Brussels-based think tank Bruegel, told DW. “The damage to Washington’s international reputation [from these tariffs] is massive.”
Edited by: Uwe Hessler
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