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TWN
Info Service on WTO and Trade Issues (Feb25/01) Trade:
Trump unleashes global trade war by imposing unilateral tariffs Bangalore, 3 Feb (D. Ravi Kanth) — United States President Donald Trump on 1 February unilaterally imposed a 25% tariff on imports from Canada and Mexico, and a 10% tariff on goods from China, a move that led to a “tit- for-tat” trade war with its two North American trade partners who decided to retaliate in an even measure, media reports have suggested. The first salvo launched by President Trump in kicking off the trade war came through three executive orders and it risks destabilizing the global trading system, as more countries including the European Union, are being threatened with punitive tariffs. Instead of addressing the continued US trade deficit, which President Trump repeatedly claimed as the prime goal in imposing tariffs, the spate of actions announced on 1 February could have a cascading effect on countries in adjusting to a seemingly new “trade pandemic”, said people familiar with the development. Though such tariffs led to negotiations in the past, issues surrounding President Trump’s latest actions could inflict irreversible damage to the global rule of law architecture for years to come, said people familiar with the development. On 2 February, President Trump admitted that the tariffs imposed on Canada and Mexico would cause pain to consumers. However, he insisted that the pain is worth taking to address the twin threats of illegal aliens and the increased illegal sales of fentanyl. Writing in his social media website, Truth Social, President Trump asked somewhat rhetorically: “Will there be some pain? Yes, maybe (and maybe not!)” He said: ”Make America Great Again, and it will all be worth the price that must be paid.” TRUMP’S ANNOUNCEMENT Posting on his social media website Truth Social on 1 February, President Trump declared: “Today, I have implemented a 25% Tariff on Imports from Mexico and Canada (10% on Canadian Energy), and a 10% additional Tariff on China.” Resorting to an extreme form of trade aggression through the seemingly unused provisions in the International Emergency Economic Powers Act (IEEPA), President Trump justified his action on grounds of “the major threat of illegal aliens and deadly drugs killing our Citizens, including fentanyl.” He said that the action is aimed at protecting “Americans, and it is my duty as President to ensure the safety of all.” The IEEPA also contains a draconian provision on ratcheting up action against countries if they respond to the US duties. Enacted in 1977 by the late President Jimmy Carter, it seeks to authorize the president to declare the existence of an “unusual and extraordinary threat… to the national security, foreign policy, or economy of the United States” that originates “in whole or substantial part outside the United States.” In effect, President Trump has turned an electoral promise into a likely global trade war that could harm all countries while also turning the multilateral trading system on its head based on the notion of “might is right”, said people familiar with the development. Also, Trump’s unleashing of a trade war will adversely affect the developing and least-developed countries most in contrast to the developed countries, as well as China, said people familiar with the development. RETALIATORY ACTIONS While Canada and Mexico have chosen to hit back with retaliatory tariffs, China opted for a somewhat softer response by announcing that it would challenge the US action at the World Trade Organization where the issue could likely remain frozen without resolution, said people familiar with the development. President Trump’s tariff decisions are being likened to a new “trade pandemic” along the lines of the Covid-19 pandemic, according to a Canadian academic who spoke to the Financial Times on 1 February. The response from Canada and Mexico to the new “trade pandemic” was swift and in an equal measure. Canada’s outgoing Prime Minister Justin Trudeau on 1 February hit back against President Trump’s unilateral action, announcing a calibrated imposition of tariffs on American goods. He said Canada will impose 25% tariffs on approximately $20 billion worth of American goods beginning from 3 February, with another $85 billion to follow within three weeks. Justifying the action as a reluctant response while delivering a televised address, Prime Minister Trudeau said, “We don’t want to be here.” “We didn’t ask for this,” he continued. Canada’s retaliatory action of a 25% additional import duty on American goods could harm products such as Florida orange juice, Tennessee whisky, and Kentucky butter. Mr Trudeau said that Canada’s tariff list would include products like beer, wine, vegetables, perfume, clothing, shoes, household appliances, furniture and sports equipment, and materials like lumber and plastics. “This is a choice that, yes, will harm Canadians, but beyond that, it will have real consequences for you, the American people,” the Canadian Prime Minister informed the American audience. While Mr Trudeau recalled how his country fought jointly with the US in all major wars over the last century, he said that the latest US tariff action is unjustifiable on any ground. The Canadian Prime Minister said that he is going to talk to the Mexican President, Ms Claudia Sheinbaum, for finalizing common positions, according to a news report in the New York Times. The Mexican President said emphatically that Mexico is finalizing its retaliatory response, suggesting that she had ordered her economy minister to implement tariffs and non-tariff measures to defend her country’s interests. Posting her remarks in Spanish on the social media platform X, Ms Sheinbaum said, “When we are negotiating with other nations, when we talk with other nations, we always do so with our heads held high, never with our heads down.” She rejected the unilateral tariffs imposed by the US President, insisting that Mexico “categorically rejects the White House’s slander of the government of Mexico having alliance with criminal organizations.” In response to President Trump’s claims of a national emergency, including a public health crisis due to the flow into the US of contraband drugs like fentanyl, allegedly made with Chinese ingredients, China also hit back by saying that it is an American problem. The Chinese commerce ministry severely criticized the US decision to impose a 10% tariff on Chinese goods. While Trump made a campaign promise to impose 60% tariffs on Chinese goods, to be further increased to 100%, Washington now appears to have backed out. In a statement issued by a spokesperson for the Chinese commerce ministry on 2 February, China said that it “will take corresponding countermeasures to firmly safeguard its rights and interests.” China’s statement suggests a softer course of action, as Beijing is fully aware that the enforcement function of the WTO has remained dysfunctional since December 2019. Taking trade disputes to the WTO would effectively imply leaving them in a deep freeze, said an analyst who asked not to be quoted. During President Trump’s first term between 2016 and 2020, China took “tit-for-tat” trade actions against the US’ unilateral trade measures, while simultaneously launching trade disputes at the WTO. Perhaps, Beijing appears to be in a mood to settle the issues with Washington through dialogue and back-channel negotiations, as Trump’s major advisor Elon Musk appears to be favourably disposed towards China, the analyst said, preferring not to be quoted. The Chinese commerce ministry’s statement made it clear that China wants to “engage in a frank dialogue” with Washington so as to “strengthen cooperation and manage differences on the basis of equality, mutual benefit and mutual respect.” TRUMP’S BRICS WAR Aside from the tariff measures against Canada, Mexico, and China ostensibly to address the problem of “illegal aliens” and “fentanyl”, President Trump also appears to be preparing the ground to wage war against the BRICS – Brazil, Russia, India, China, and South Africa as well as several other countries – who had floated a proposal to consider settling their trade in their local currencies. Given the difficulties faced with US dollar-based global trade, the BRICS nations, in their last meeting in Russia in 2024, began considering a proposal on how to settle their trade in their respective currencies. Though the BRICS’ move to consider non-US dollar-based payments is in its incipient stage, President Trump is already threatening serious consequences for countries if they attempt to replace the US dollar in trade. On 30 November 2024, weeks after winning the US presidential elections, President Trump declared on his social media website Truth Social: “We are going to require a commitment from these seemingly hostile countries that they will neither create a new BRICS currency to replace the mighty US dollar or they will face 100% tariffs.” Subsequently, in response to the US President’s statement, Russia said that any US attempt to compel countries to use the US dollar would backfire. The US President repeated his threat on 30 January. Although there has been no formal response to President Trump’s threat against the BRICS from its leaders, recently India said that it will not move away from US dollar-based global trade. In conclusion, it appears somewhat clear that the new “trade pandemic” launched by the US may not be averted unless major developing countries, particularly the BRICS nations, join hands to rebuff the US actions.
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