Nations find that neither anger nor appeasement deflect Trump’s tariff threats

Mexico boosted security measures and the EU is focusing on trade talks but they’re still facing tariff hikes in a take-it-or-leave-it situation.

Donald Trump and Mexico's President Claudia Sheinbaum. Picture: AFP.

America’s biggest trading partners have tried tactics ranging from appeasement to retaliation to avoid higher tariffs. Most have come away bruised and empty-handed.

Mexico took US President Donald Trump’s drug enforcement demands seriously and boosted security measures. The European Union paused retaliation plans to focus on trade talks. Canada hit back with tariffs several months ago before shifting to a more conciliatory approach.

All are faced with tariffs that have risen sharply since President Trump took office. This past week he threatened most of them with further escalation.

Now they are grappling with how to respond to a US administration that is using trade policy for a range of political and economic objectives. Over the past week, Mr Trump sent letters containing fresh tariff threats to about two dozen countries.

Some, including Japan and the EU, had sought to address his concerns in recent months, said Simon Evenett, a professor at IMD Business School, who runs Global Trade Alert, a trade policy monitoring site. But he said it’s unclear whether engagement has resulted in better treatment.

“They found out that it’s not a negotiation – it’s a take-it-or-leave-it situation,” he said.

Most countries will probably still try to negotiate a deal ahead of August 1, Professor Evenett said. But they should also start thinking about how to adapt to Mr Trump’s tariffs by supporting their exporters and helping companies find new markets, he added.

European Commission president Ursula von der Leyen said on Sunday the bloc would keep its retaliatory tariffs on hold until early August while it negotiates with the US. She added that the EU is also continuing to ready further countermeasures, “so we are fully prepared”. Ambassadors from the EU’s member states met with commission officials on Sunday to discuss Mr Trump’s letter, which threatened to increase blanket tariffs on most European goods to 30 per cent from the current 10 per cent. European officials had believed until recently that progress in their talks with the US meant they would not be among the trading partners receiving a letter last week.

On Monday, the commission is expected to present member states with a second package of retaliatory tariffs that could be deployed if negotiations fail. Diplomats were told it will target about €72bn ($128bn) worth of US imports, equivalent to about $US84bn, people familiar with the matter said. An earlier package of tariffs affecting about €21bn worth of US imports has been on hold since its approval in April.

The results could change before August 1. Some analysts viewed Mr Trump’s letters as a negotiating tactic that aims to put more pressure on governments before next month’s deadline.

Dan Mullaney, a former assistant US trade representative for Europe and the Middle East, said he thinks Mr Trump’s letter to the EU is about pushing the bloc toward a better deal. Mr Trump previously threatened imminent 50 per cent tariffs on the EU in May, in a move that appeared to speed up negotiations.

Still, Mr Mullaney said the letter is likely to embolden those in the EU who want to retaliate and have argued that the US isn’t serious about doing a deal. “Those people will feel like they’re now justified in their beliefs,” he said.

French President Emmanuel Macron said on Saturday that the EU should speed up preparation of its countermeasures in case a deal is not reached, “by mobilising all the instruments at its disposal”. He said that includes the EU’s so-called anticoercion instrument, a legal tool that could allow the bloc to impose levies on US services, among other measures.

Ms von der Leyen said on Sunday that the anticoercion instrument exists for extraordinary situations. “We are not there yet,” she said. “This is now the time for negotiations.”

She made the comments on Sunday while announcing a political agreement on a trade deal with Indonesia, which she said shows how the EU is looking for new markets.

Just two countries have secured outline trade deals with the Trump administration: the UK and Vietnam. China and the US reached a tariff truce after a tit-for-tat escalation earlier this year.

The range of US trading partners now facing new tariff threats from the US shows how difficult it is to draw conclusions from the different approaches countries took in responding to the Trump administration, said Dmitry Grozoubinski, senior trade adviser at Aurora Macro Strategies.

Mexico and Canada had a pre-existing trade relationship with the US that was based on the US-Mexico-Canada Agreement, a deal Mr Trump himself had pushed for during his first term as president, Mr Grozoubinski said. And both countries boosted border security in response to Mr Trump’s demands.

The EU appeared to be negotiating constructively. And Brazil, on which Mr Trump threatened to impose 50 per cent tariffs this week based on grievances not related to trade, imports more American goods than it exports to the US, resulting in a trade surplus for the US.

“I legitimately do not know what you could possibly advise someone in terms of best negotiating approach, when it is very, very clear that what constitutes an acceptable landing zone is entirely within one person’s mind and constantly shifts,” Mr Grozoubinski said.

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