The New Trade War Unleashed by Donald Trump
By Federico Fo, Reading time: 8 min
Immediately after the beginning of his mandate in January 2025, the new president of the United States, Donald Trump, has begun to follow through with the promises made during his electoral campaign, in terms of trade policy. Indeed, Donald Trump announced the introduction of the already planned tariffs that are going to hit some of America’s main trading partners. The latter include Mexico, Canada, China and the EU.
Trump provided that the imposition of tariffs is a means to increase tax revenue and foster economic growth, but also serves to protect American jobs particularly when referring to the manufacturing sector, which has increasingly shrunk throughout the last decade. Additionally, Trump stated a variety of other motivations behind the imposition of the tariffs, all geared towards furthering American interests around the world. In fact, his first mandate already showed how Trump makes use of tariffs to bring other countries to negotiate new trading agreements that can be said to be more advantageous for the US.
Donald Trump and his supporters during the electoral campaign of 2024 in Dream City Church, Phoenix (Arizona). Picture by Gage Skidmore from Surprise, AZ, United States. License Creative Commons Attribution-Sharealike 2.0. No changes made. https://www.flickr.com/people/22007612@N05
Trump’s first substantial announcement, made at the beginning of February, saw a promise for the application of tariffs of the value of 25% over imports from Mexico and Canada. These tariffs shall have the intent to stop the flows of illegal immigration and of illegal drugs like fentanyl. In this regard Trump has already managed to achieve some success, as the president of Mexico Claudia Sheinbaum and the president of Canada Justin Trudeau have already negotiated new deals with him, managing to delay the introduction of the tariffs by one month. Mexico and Canada have, in response to this new deal, promised to increase their commitment regarding the security of the US border.
Specifically, Mexico, in exchange for further commitment by the US to cut the supply of American weapons to the Mexican Cartels, promised to increase controls to stop the flows of illegal immigration and of fentanyl. It is argued that the chemical products which comprise the drug are in fact shipped from China into Mexico, where cartels move the finished product into US borders.
Similarly, Canada promised the use of better technologies to patrol the American border to stop the flows of fentanyl. Nevertheless, there is skepticism regarding the usefulness of stopping the flows of fentanyl coming from Canada. This is because, as reiterated by Trudeau, just 1% of all the fentanyl that gets into the US comes from Canada. Consequently, it is argued that the tariffs on Canada may have other kinds of objectives. Specifically, these tariffs may have the objective to increase economic pressures on Canada in order to obligate the country to become the 51st State of the United States; as Trump already said for this to be one of the objectives of his new presidential mandate.
The second set of tariffs was imposed by Trump on February 3, for the value of 10% over a wide variety of Chinese products. This is the latest instance in the ongoing trade competition between the two superpowers, and can be seen as a response to China holding very high trading power over the US, as the latter has a trade deficit of almost 361bn$ with its rival. Already during his first mandate, Trump started a trade war with China which at the time had a lower positive trade balance with the US. After the first “trade war”,the two sides had come into an agreement as China promised to import more US goods in order to re-establish a new balance in Chinese-American trade relations. Nevertheless, the objectives of the agreements were at last stopped by the unexpected and inevitable effects of the Covid-19 pandemic.
Donald Trump and the Chinese Vice premier Liu He, sign the US-China phase one trade agreement on 15 January 2020. Picture by the White House (Public Domain).
Trump, despite these new tariffs, may have the objective to find a new, more advantageous trading agreement with China. Unfortunately, nowadays China is an even more solid economy than during Trump’s first mandate, with its economy annually diminishing its reliance on exports abroad. Moreover, already in the past Chinese companies had shown great flexibility in managing to circumvent American tariffs, simply moving their centers of production to neighboring countries like Malaysia and Thailand. Thus, making it harder for Trump to manage to find a new deal.
China has already replied to the new tariffs through retaliation, imposing tariffs of 10% and 15% on a series of American natural resources, agricultural machinery and vehicles. Next to this China promised to bring the situation before the World Trade Organization (WTO), claiming the violation of trading rules by the US. However, Trump has in the past shown how easily the WTO can be influenced by American decision-making, meaning chances are low that any international organization will stop the trade war from proceeding.
Lastly, in regards to the EU, Trump stated how the trade deficit of almost 213bn$ that the US has with EU countries is an “atrocity” that needs change. Because of this Trump threatened the future introduction of tariffs against EU countries in order to reverse the present trend. Facing the threat of tariffs, the EU has characteristically found itself not totally united.
On one hand, leaders like Emmanuel Macron, Ursula Von der Leyen and the probable future German chancellor Friedrich Merz, firmly stated how Europe will be ready to impose its own interests against the US through the application of retaliatory tariffs if necessary. On the other hand, a series of countries like Poland, Finland, and the Baltic States, stated their preference for negotiating with the US, highlighting the immediate need for NATO allies to show a compact block against the Russian threat in the East. Their proposal would see an increase in the imports of American goods.
In this latter regard the Prime minister of Italy Giorgia Meloni has proposed herself to mediate possible negotiations between Trump and the EU. Although, among countries that oppose the new populist far-right wave in Europe to which Meloni belongs, there is great skepticism on whether she would be the best mediator.
To conclude, the new American administration seems ready to unleash a new trade war all over Europe that most probably will damage consumers and producers on both sides. Trump hopes to gain room for negotiations through the use of these tariffs. Although of course only time will tell whether this gamble will be won or lost.
