Trump’s tariff war forces allies to choose resistance or surrender

Canada and the EU have fought back, the UK and Mexico haven’t, and nobody knows which strategy will ultimately work.

American-made whiskey is removed from a bottle shop in Toronto as the trade war between the US and Canada deepens. Picture: Bloomberg

Donald Trump’s trade war is ­forcing America’s closest ­allies to choose between fighting back or acquiescing. The trouble is, ­nobody has figured out which is the best way to get the US President to do what they want.

The European Union and Canada have led the charge against Mr Trump’s tariffs, threatening their own duties on tens of billions of dollars of American goods after the US levelled blanket tariffs on steel and aluminium. Officials in both regions have calculated there is value in showing strength.

“Of course, we have to retaliate,” said Anna Cavazzini, a member of the European parliament from Germany. She said the European Commission wanted a deal, but: “We also have to show our teeth because it’s the only language this Trump administration is basically understanding.”

On the other side are the UK and Mexico, among others, which have decided to hold fire in the hope of striking a deal. Some countries are also loath to disrupt their security alliances with the US, which are viewed as increasingly fragile under Mr Trump.

“Who is going to do better: the people that poke the bear in the eye, or those who wait for the ­people who are poking to be eaten first?” said Barry Appleton, an international trade lawyer and co-director of the New York Law School’s Centre for Inter­national Law.

The decision is going to be even more tricky on April 2, when the Trump administration plans to move forward with a list of so-called reciprocal tariffs that aim to match the duties and non-tariff trade barriers that other countries impose on American products, an act that would rewire global trade. Mr Trump has called it “Liberation Day”.

So far, choosing between retaliation and compliance hasn’t mattered for Canada and Mexico, which have used different tactics – Canada being more ­aggressive with retaliation and Mexico taking a firm but co-operative approach. Both countries were still slapped with a 25 per cent duty on many of their exports in March.

Mr Trump suggested the tariff policies were evolving, adding to the confusion. “I may give a lot of countries breaks,” he said this week. “We might be even nicer than that.”

The US so far has put 25 per cent duties on many products from Canada and Mexico, citing concerns about border security and up-ending the three countries’ free-trade agreement. On March 12, Mr Trump levied 25 per cent tariffs on global imports of steel and aluminium, citing a need to protect domestic industries. China already faced steep tariffs in the US, and Mr Trump raised them even higher over the past two months.

Among the governments that have pushed back, Canada, China and the EU feel they have enough leverage to hurt the US economy.

Canada, the EU and China are among the top importers of US goods, and Canada is a major supplier of energy to the US. The size of the EU’s market, which includes 27 member states, means that tariffs it imposes on US products will have a noticeable impact for US companies, said officials.

In Canada, there is the added element of Mr Trump’s stated ­desire to make the country the 51st state, a proposition that Canadian leaders first saw as a joke but now view as a serious threat. Adding to the fervour to strike back: Canada is in the midst of a national election that revolves around which political party is best positioned to manage Mr Trump.

“I think you have to hit back. I don’t think Trump respects rolling over,” said David MacNaughton, a former Canadian ambassador to the US. But when countries fight back, Mr Trump has struck back much harder.

Earlier this month, Canada’s Doug Ford, leader of the province of Ontario, said he would punish the US for tariffs by slapping a 25 per cent export tax on electricity that goes to 1.5 million American homes. Two days later, the EU also threatened to hit the US for its tariffs on steel and aluminium, unveiling duties of up to 50 per cent on whiskey, motor­cycles and motorboats, among other American products.

Then Mr Trump threatened to double the 25 per cent steel and aluminium tariffs on Canada and slam the EU with a 200 per cent duty on Champagne and other ­alcoholic products. Canada and the EU tapped the brakes, showing the limits of an aggressive ­retaliatory strategy.

Canadian Prime Minister Mark Carney last week noted Canada’s economy was much smaller than the US’s and there was only so much it could do.

“There is a limit to matching these tariffs dollar for dollar given that our economy is one-10th the size of the United States,” he said.

The EU has also recently shown signs of softening. A first tranche of countertariffs was set to take effect on April 1, but the bloc said last week it would delay them to mid-April to allow more time for internal consultations and ­negotiations with the US.

EU Trade Commissioner Maros Sefcovic met on Tuesday with US officials in Washington for what he said were substantive talks. “The EU’s priority is a fair, balanced deal instead of unjustified tariffs,” he said.

China’s retaliatory measures – new tariffs on US agriculture and livestock, a World Trade Organisation lawsuit, and probing US firms for potentially “dumping” fibre-optic products – are seen as muted and symbolic. Analysts say it is likely looking for leverage to make a deal.

Others with less leverage have decided to swallow tariffs in the short term, gambling that it is safer to stay in Mr Trump’s good graces.

Mexico, which sends almost 80 per cent of its exports to the US, has sent a stream of officials to Washington for talks with US counterparts. Meanwhile, President Claudia Sheinbaum has tried to create a respectful, but forceful dynamic with Mr Trump on their phone calls.

Hoping to address Mr Trump’s concerns about drugs and ­migrants flowing over the border, Mexico in February transferred 29 imprisoned drug kingpins to the US. In a recent call, Ms Sheinbaum shared a chart with Mr Trump titled “Look at the ­Results!” that highlighted a sharp drop in drug seizures with statistics from US Customs and Border Protection.

Mr Trump has expressed ­admiration for Ms Sheinbaum but hasn’t given Mexico a break. If Mr Trump proceeds with new tariffs on Mexican goods, the damage to bilateral co-operation will be significant, said one Mexican official.

“How do you maintain co-operation if this wrecks your economy?” the official asked. “Politically, it’s not sustainable to be close to an administration that hits you with a recession.”

In the UK, Prime Minister Keir Starmer is looking to act as a bridge between the US and ­Europe on issues such as defence and Ukraine. Not entering into a trade dispute with the US administration is an important plank of that strategy. Britain is also eager to sign a trade deal with the US, and has been on a charm offensive to woo Mr Trump. During a White House visit last month, Mr Starmer delivered to Mr Trump a handwritten invitation from King Charles for a state visit.

“The Prime Minister and I have gotten off to an outstanding start,” Mr Trump said later.

Additional reporting: Santiago Perez