Mexico and Canada were excluded from yesterday’s announcements, but are still subject to tariffs on most imports to the U.S., with the new 25% tariff on U.S. auto imports set to affect North American supply chains.

AQ asked analysts to share their reactions and perspectives.

Sergio Luna

Luna is an economist from UNAM with an M.Sc and Ph.D. in economics from the University of London. He’s Grupo Financiero Mifel’s chief economist.

There’s a big sigh of relief south of the border. With “reciprocal tariffs” meaning a hefty 34% for China, 20% for the EU, and a 10% baseline tariff, keeping Mexico and Canada at “just” 25% tariffs on import content not covered by the USMCA has everyone in Mexico talking about the benefits of trade diversion (although no one uses that word). The foreign exchange market seems to concur, as it ended “Liberation Day” with the Mexican peso as the third-best performer vs. the U.S. dollar.

My back of the envelope calculation is that the weighted tariff for motor vehicles crossing from Mexico to the U.S. will rise from 0.6% to 6%. Agro-industrial exports (already more prominent than oil & mining exports at 9.4% of the total) should be little affected since, apparently, we go back to the definition of regional – rather than U.S. – content rules for USMCA qualification. In the case of electronic goods, calculations are more complicated but since only about 37% of their export value is local content, the tariff increase should be higher. Still, it should compare favorably with that applied to ASEAN countries, for instance.

However, by comparing Mexico to other countries after “Liberation Day” we seem to forget that Mexico is worse off vis-à-vis our initial position. Moreover, we also ignore that the U.S.’s unilateral imposition of tariffs on Mexico and Canada goes against USMCA rules. As far as I know, no Mexican official has discussed the possibility of filing a complaint under USMCA conflict resolution mechanisms. De facto, a regional rule-based system has been substituted with transactional, unilateral decision-making. If USMCA is dead, can we at least have a proper eulogy?

Sometimes, the forest matters as much as the tree. Mexico is a very open economy (its trade-to-GDP ratio is 73%), heavily reliant on global value chains that are geared to the U.S., the destination of 80% of Mexican exports. Irrespective of our relative position in terms of tariffs, any measure that affects the trade system’s current operation, as well as the health of the U.S. economy, will have an impact on Mexico. In that regard, the indirect effects of tariffs on U.S. activity and inflation imply an additional challenge for Mexico’s macroeconomic prospects.

Antonio Ortiz-Mena

CEO of AOM Advisors, Adjunct Professor of International Economic Relations at Georgetown University’s Walsh School of Foreign Service and Chair of the Mexican Foreign Trade Council (COMCE)‘s USMCA Committee.

The U.S. has implemented tariffs on a wide range of imports from its trade partners, with some exceptions for goods that comply with the USMCA agreement. These tariffs aim to strengthen the U.S.’s position in the global economy, protect American workers, and promote domestic production of certain goods. Additionally, the tariffs are intended to reduce the U.S. trade deficit and generate revenue that could help offset the expected loss in tax revenue due to anticipated domestic tax cuts. Given the complexity and scale of these measures, it will take months—or even years—before their full impact becomes clear. However, several potential outcomes can be anticipated.

One possibility is that the U.S.’s trade partners will respond by reducing some tariffs and non-tariff barriers that currently restrict U.S. exports. In turn, the U.S. may then reduce its own tariffs, leading to more open and reciprocal trade. While this scenario remains plausible, another potential outcome is that some countries might challenge the legitimacy of unilateral tariff increases, either at the World Trade Organization (WTO) or through regional trade agreements. In response, these countries might impose higher tariffs on U.S. exports, especially impacting the U.S. agricultural and services sectors. Such retaliatory measures could undermine the U.S.’s goal of reducing its trade deficit.

Another concern arises if the U.S. intends to rely on significant tariff revenues to support its domestic economic policies. It remains unclear how this would be achievable if the U.S. simultaneously seeks to encourage import substitution—producing goods domestically that it had previously imported.

For many countries in the Americas, particularly those with China as their primary trade partner, there could be a growing push to diversify trade relationships away from the U.S. While the USMCA remains largely unaffected for Mexico and Canada, uncertainty looms, particularly in the automobile sector, where supply chains could face disruptions.

The tariff increases implemented on April 2 represent the largest since the 1930 Smoot-Hawley Tariff Act, which is often cited as exacerbating the economic downturn following the 1929 stock market crash. Since the establishment of the General Agreement on Tariffs and Trade (GATT) in 1947, countries have generally sought to avoid imposing large unilateral tariff increases, as such actions tend to provoke retaliatory measures that can harm all parties involved. While it is hoped that the U.S.’s envisioned scenario will unfold, the risk of escalation—something GATT was designed to prevent—remains a very real concern.

Luíza Pinese

Pinese is an economist focused on balance of payments analysis for the macroeconomics team at XP Investimentos in São Paulo.

President Trump’s tariff decision was based on the overall trade deficits the United States runs with each trading partner, rather than the effective tariff imposed on specific products. Given that Brazil maintains a roughly balanced trade position with the U.S., it was assigned just the baseline 10% additional tariff. That was a better-than-expected outcome. The market reaction in Brazil has been quite positive, reflecting a sense of relief and that Brazil could be a relative “winner” in the global trade war (more below). That said, Brazilian exports to the United States are expected to decline in absolute terms, as some products may be replaced by U.S.-made alternatives.

From a macroeconomic perspective, the direct effect is likely to be limited. Exports account for some 18% of Brazil’s GDP, and sales to the U.S. represent about 12% of total exports—thus, 2.2% of GDP. However, on the microeconomic level, the consequences may be more significant, especially in sectors where the U.S. is a dominant buyer, such as iron and steel, aircraft, and ethanol.

In our initial assessment, Brazil may even benefit indirectly from a broader trade war scenario (since countries may retaliate against the U.S. measure). Being subject only to the minimum additional tariff rate reduces the risk of trade diversion away from Brazilian products. China and the European Union face considerably higher tariffs, which could, over time, open space for Brazilian exporters to gain market share. Globally, however, the impact may prove more pronounced than initially anticipated. Brazil is not immune to these broader dynamics: changes in economic activity in the U.S., China, and the European Union could reverberate through global markets, affecting commodity prices and investor sentiment.

China and the European Union have vowed retaliation. The same could happen in Brazil. Officials expressed regret over the decision and affirmed their intention to work with the private sector to defend the interests of domestic producers. The Congress has already approved a bill known as the “Economic Reciprocity Law,” which authorizes Brazil’s Foreign Trade Chamber to adopt the use of retaliatory tariffs and non-tariff barriers. At the same time, the government has expressed a willingness to deepen dialogue with the U.S. in hopes of reversing or softening the announced measures.

Back in 2018, although Trump imposed 25% tariffs on steel and 10% on aluminum, Brazil was able to negotiate an exemption and was included in a quota-based system.

To read this article as it was posted by Americas Quarterly, click here. 

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President Donald Trump unveiled a series of tariffs on Wednesday afternoon during his “Make America Wealthy Again” event in the White House Rose Garden.

Using his International Emergency Economic Powers Act authority, he announced the U.S. will impose a 10% tariff on more than 50 countries that will take effect April 5, 2025, at 12:01 a.m. EDT.

President Trump will also impose an individualized reciprocal higher tariff on the countries with which the U.S. has the largest trade deficits to take effect April 9, 2025, at 12:01 a.m. EDT. All other countries will continue to be subject to the original 10% tariff baseline.

During the announcement, President Trump held up a chart showing specific countries in line for what he described as reciprocal tariffs.

“ We will charge them approximately half of what they are — and have been — charging us,” he said. “So, the tariffs will not be a full reciprocal. I could have done that, I guess, but it would have been tough for a lot of countries.”

A partial list of the countries and tariff percentages to be imposed include:

• China – 34%
• European Union – 20%
• Vietnam – 46%
• Taiwan – 32%
• Japan – 24%
• India – 26%
• South Korea – 25%
• Thailand – 36%
• Switzerland – 31%
• Indonesia – 32%

Farmers Caught In The Crossfire

Glen Newcomer wants to be positive in the face of President Trump’s move to introduce a new round of tariffs on U.S. trading partners. But the northwest Ohio corn and soybean farmer says he’s concerned any looming trade wars could create more losers than winners in the agricultural industry, a sentiment shared in a recent AgWeb poll that found more than half of farmers don’t support Trump’s use of tariffs.

On the winning side of things, Newcomer thinks this moment might be a short-term opportunity for farmers in the market for equipment to go ahead and make their purchases.

“There are a lot of dealerships with inventory on their lots right now that was shipped and is sitting there, so that equipment is going to have a lower sticker price than equipment that’s going to be tariffed or have components that are tariffed,” says Newcomer, who farms near Bryan, Ohio. His advice to other farmers: “Get a look at the inventory and see if there’s anything there you need because the new equipment will continue to cost more.”

While that’s a possible silver lining, it’s about the only positive Newcomer can muster up.

“The expectation that farmers will get compensated, as they did in the past, for this trade difference – with all of the emphasis on reducing spending – I don’t know if that’s going to materialize,” Newcomer says.

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The US is not a big trader. Just a fourth of its economy comes from international exchanges, far behind other OECD countries, in which trade averages closer to two-thirds of total economic output. And unlike in most other nations, trade’s importance in the US economy has been falling in recent years.

Still, the US sells some $3 trillion a year worth of goods and services to the world, supporting roughly 10 million US jobs. It is a major commodity exporter, selling nearly $700 billion in oil, gas and coal as well as grains, soybeans, meat and more every year. It also sells more than a trillion dollars annually in high-end services abroad, including software, advertising, movies and airline flights that ferry tens of millions of global travelers.

International sales present big growth opportunities for US-based companies and workers. While US economic growth has recently outpaced other high-income countries and even many emerging economies, the US customer base is just 4% of the globe’s population. And the next billion newly minted middle class will live elsewhere — mostly in Asia. Whether growing food, building planes or creating online games, companies that cater only to the domestic market have a limited runway for future growth.

Moreover, export-oriented jobs, particularly those in manufacturing, tend to pay more. According to the US International Trade Commission, workers in export industries earn 16% more than their domestically-oriented counterparts. And export-oriented operations tend to create more job opportunities than domestically focused industries.

Despite the outsized economic benefits of exports, the US has been losing global market share: Its share of international sales in 2023 was less than 9%, down from 12% in 2000. Domestic costs and barriers are partly to blame. Despite a bounty of energy, for instance, prices are still high compared with industrial rivals China, Vietnam and Mexico. Wages, even when factoring in the higher productivity of US workers, outpace those of many competitors, as do US corporate tax rates. And for many industries, including mining, refining and chemical manufacturing, regulatory and other hurdles make it harder to set up shop.

Exporters also get little help from the US government, at least when compared with many other nations. Government loans and financing are often difficult to come by. Other forms of public support are spread piecemeal across more than a dozen agencies, a landscape that’s harder for companies, especially smaller ones, to navigate.

The US pullback from trade agreements is also leaving its exporters at a growing disadvantage. Many countries, including China, have signed a plethora of new free-trade agreements, including the Regional Comprehensive Economic Partnership, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the African Continental Free Trade Agreement, the Pacific Agreement on Closer Economic Relations Plus, the Australia-United Kingdom Free Trade Agreement, and the EU-Vietnam Free Trade Agreement. Negotiations are continuing apace between the EU and India, South America, and Mexico. As these agreements come into force, exports between the partner nations will become relatively cheaper than with those nations, like the US, that remain outside the club.

Meanwhile competition, fair or not, has been undercutting US sales into once lucrative markets. Mexico remains one of the biggest destinations for US exports, buying some $370 billion in goods and services every year. Yet US makers have lost market share in footwear, clothing, sports equipment, cellphones, electronics, cables, motors, cars and more over the last twenty years.

To be competitive, US exporters of electronic parts, machinery, automobiles, pharmaceuticals and other goods need affordable inputs from abroad. No country today makes every piece, part or ingredient that goes into their products. Already more expensive steel and aluminum mean US-made engines, aircraft and household appliances will likely cost more than their Japanese, Chinese and German counterparts. The broader tariffs envisioned in President Donald Trump’s “Liberation Day” will cause more US-based sectors to lose more ground.

If that wasn’t bad enough, tariffs tend to beget retaliatory tariffs, further shrinking markets for aspiring US-based exporters. China has levied taxes on US energy, autos, tractors and many agricultural products. Europe has threatened mid-April retaliatory tariffs on steel, aluminum, whiskey, motorcycles and more. Canada and Mexico have largely held off so far, but they too will tax US goods if delayed tariffs go into effect.

The US maintains strong commercial advantages. Its trusted legal system, intellectual property protections, human talent, bounty of financing and thriving consumer market attract companies and investors from around the world. Indeed, the US has long been the biggest beneficiary of foreign direct investment.

But tariffs threaten these flows too. Yes, some companies will invest in the US to gain market access today. But they won’t be able to use US operations as a profitable base for global consumers or to reach the fastest-growing commercial markets. US companies will become less likely providers of raw materials, capital goods and intermediary inputs for other nations’ manufacturers. US makers will get cut out of global supply chains. And US consumers and workers at home will be left to subsist on a much smaller economic pie. 

To read this article as it was published by the Council on Foreign Relations click here. 

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Enacted in 1946, the APA governs how federal agencies can issue regulations. The APA establishes specific procedures, such as a public comment period, that federal agencies must follow when they engage in administrative action, such as issuing new rules and regulations, adjudication of licenses, or interpretation of existing regulations. In addition, the APA provides standards for judicial review of an agency action, enabling courts to strike down actions if they find that their substance or procedural history fails to meet APA standards. 

However, the APA excludes certain agency functions from its procedural requirements and judicial standards, including actions involving “military or foreign affairs functions” under Title 5, Sections 553(a)(1) and 554 (a)(4) of the U.S. Code. In short, the Rubio memorandum is an effort to protect most of President Trump’s actions on trade, illegal immigration, export controls, artificial intelligence, and espionage from procedural requirements and judicial review by pulling these under the umbrella of the “foreign affairs” exception. 

Doing so would insulate the administration from having trade-related agency actions struck down in the courts because of “process fouls”—procedural errors in conducting an agency action. For example, agency actions involving trade would no longer be exposed to potential “arbitrary and capricious” claims under Title 5, Section 706, of the U.S. Code, which allow courts to strike down agency actions that are arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. In other words, agency actions can be struck down when they are so far-fetched that they appear to lack any reasonable basis, do not consider relevant factors, or demonstrate a clear error of judgment. Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971). These agency actions would still remain subject to tests of constitutionality or compliance with applicable laws.

The first Trump administration frequently ran into process fouls, and so far, the new administration gives every sign of having the same problem. In its first two months, the administration has already run into a burst of unfavorable court rulings.

Given the administration’s focus on implementing new trade actions with respect to China, Mexico, Canada, and others, it is unsurprising that it would take steps to shield these actions from judicial challenges. Still, the Rubio memorandum raises the question of whether existing trade laws are, in fact, subject to the APA, and, if so, whether the secretary’s memo will make any difference. The short answer is that some trade laws are subject to the APA, and some are not. It is not clear whether the memo would force any significant changes.

Q1: Which trade actions are subject to the APA, and which are not?

A1: The distinguishing question for whether a trade action is subject to the APA is whether the statute authorizing the action requires a presidential decision, in which case action taken under such statute is not subject to the APA, or an agency decision, in which case action taken under such statute is subject to the APA. The Supreme Court held in Franklin v. Massachusetts, 505 U.S. 788 (1992) that presidential actions are not reviewable under the APA, as the president is not specifically included in the APA’s defined scope of what constitutes an “agency action.”

Because the International Emergency Economic Powers Act (IEEPA), which the administration called on to impose recent across-the-board tariffs on China, Mexico, and Canada, requires a presidential decision, action taken under the statute is generally not subject to the APA. IEEPA actions nevertheless can be challenged in the courts as violations of due process under the Constitution or as actions beyond the president’s authority, as in Dames & Moore v. Regan, 453 U.S. 654 (1981).

Section 232 of the Trade Expansion Act of 1962, which the president has relied on to impose tariffs in both administrations, also involves a final decision by the president after a report and investigation by the Department of Commerce and is thus also exempt from the APA. While Section 232(b)(2)(iii) of this statute authorizes the Department of Commerce to hold hearings and seek public comments, it does not require these procedural steps. Instead, doing so is discretionary: The Department of Commerce can, “if it is appropriate and after reasonable notice, hold public hearings or otherwise afford interested parties an opportunity to present information and advice relevant to such investigation.” Because these procedural steps are not mandatory, and in the end, the final decision on any action rests with the president, Section 232 actions can only be challenged on Constitutional and other statutory grounds and not under the APA.

The other statute that the first Trump administration used frequently was Section 301 of the Trade Act of 1974, which it used as the basis for a series of tariff actions on China. Unlike actions taken under IEEPA and Section 232, actions taken under Section 301 are subject to the APA because the statute grants ultimate authority to the U.S. Trade Representative (USTR), albeit subject to the direction of the president. Accordingly, USTR Lighthizer’s decisions in 2018 and 2019 to impose 25 percent and 7.5 percent tariffs on various Chinese products were challenged under the Administrative Procedure Act in the U.S. Court of International Trade (CIT). The court found that USTR’s Section 301 decisions are covered by the APA, rejecting the U.S. government’s claims that Section 301 decisions are non-reviewable because they are presidential actions. The court also found that Section 301 decisions are not covered by the foreign affairs exception to the APA. The court went on to find that USTR had failed to adequately respond to comments filed as part of the notice and comment process for the tariff actions as required by the APA, although the court eventually upheld the tariffs after USTR filed a supplemental response to the comments. The case is still on appeal at the U.S. Court of Appeals for the Federal Circuit (CAFC).

Another consideration related to which trade actions might be subject to the APA is their constitutional basis. Many of the trade laws discussed above, including Section 301, are traditionally considered to be an exercise of Congress’s constitutional authority to “regulate commerce with foreign nations” under Article I, Section 8, which has been delegated with certain guidelines to the executive branch to implement. Actions authorized by these statutes are considered distinct from trade actions that might stem from the president’s Article II authority over foreign affairs, which is the focus of the Rubio memorandum. In addition, antidumping and countervailing duty decisions under Title VII of the Trade Act of 1974 are expressly subject to judicial review in Title 28, Section 1516a(b), of the U.S. Code, under an arbitrary and capricious standard. Likewise, decisions under Section 201 of the Trade Act of 1974 are reviewable by the Court of International Trade under Title 28, Section 1581(i), of the U.S. Code, and the U.S. International Trade Commission is required to hold a public hearing and afford opportunities for stakeholder comments in such proceedings under Title 19, Section 2252(b)(3), of the U.S. Code. In the end, it is unlikely that the administration will be able to get traditional trade statutes like Section 301, Section 201, or Title VII antidumping and countervailing duties excepted from APA procedural provisions or judicial review, but they might have better luck with IEEPA and Section 232.

Q2: Have the president’s previous tariffs been challenged in court?

A2: The use of any of these tariff authorities by President Trump is almost certain to be challenged by importers or other stakeholders, but as we pointed out in a previous article, such claims would face a steep uphill climb if past precedent is any indication. The courts, including the Supreme Court, traditionally have been reluctant to interfere with the president’s exercise of foreign affairs and tariff powers. To be sure, most claims have advanced constitutional or statutory, rather than APA-based, arguments. 

The CAFC stated in Maple Leaf Fish Co. v. United States, 762 F.2d 86 (Fed. Cir. 1985) that courts have “a very limited role” in reviewing presidential trade actions “of a highly discretionary kind,” such as tariffs or import quotas under Section 201, and such actions can only be set aside if they involve “a clear misconstruction of the governing statute, a significant procedural violation, or action outside delegated authority.” Maple Leaf Fish Co. is particularly relevant since the CAFC has jurisdiction over most trade law appeals.

While importers have previously challenged President Trump’s Section 232 tariffs on imported steel and aluminum and his Section 301 tariffs on Chinese products, these cases have gone nowhere. In American Institute for International Steel (AIIS) v. Morgan, Case: 19-1727 (July 28, 2020), the CAFC reaffirmed that the Section 232 tariffs did not violate the Constitution’s Separation of Powers under the non-delegation doctrine. In Transpacific Steel v. U.S, and in PrimeSource Building Products v. U.S., Case No. 2021-2066 (Fed. Cir. 2023), the CAFC found that delays imposing Section 232 tariffs beyond the 180 days spelled out in the statute were still within the president’s authority. Likewise, the CIT rejected a challenge to President Trump’s Section 301 tariffs, although the case is still pending on appeal.

 Q3: Will there be new challenges, and how are they likely to play out?

A3: Given the current Supreme Court’s willingness to revisit past precedents and the anticipated high costs of the tariffs, there will almost certainly be legal challenges to the administration’s trade actions. This prediction holds true even if the Rubio memorandum successfully exempts certain trade actions from the judicial review under the APA’s “arbitrary and capricious” standard, because some of the most promising claims against the Trump administration’s recent tariffs are based on constitutional arguments.

President Trump’s tariffs on steel, aluminum, and Chinese products under Sections 232 and 301 would likely be on solid ground given past court decisions upholding similar actions in Trump 1.0, although his Section 232 tariffs on imported autos could be challenged on statutory grounds given the five-year lapse between issuance of the Department of Commerce’s report on February 19, 2019, and his decision to act by imposing 25 percent tariffs on imported autos and core parts. Likewise, President Trump’s “Liberation Day” reciprocal tariffs on a broad swath of U.S. trading partners could be more exposed, given their unprecedented scope. Importers are likely to argue (1) that the reciprocity tariffs violate the Supreme Court’s recent revival of the “major questions doctrine” under Chief Justice Robert’s opinion in West Virginia v. Environmental Protection Agency, 597 U.S. 697 (2022), which held that administrative agencies do not have the power to regulate on a “major questions” of extraordinary economic and political significance unless they have clear statutory authority from Congress; and (2) that the statutes violate the nondelegation doctrine because they completely cede Congress’s power to levy tariffs to the president without providing an intelligible principle or constraining guidelines on how to implement such tariffs. While the non-delegation doctrine has been a dead letter since the 1930s, some of the conservative justices (e.g., Justice Gorsuch) have expressed an interest in revisiting it (and a nondelegation challenge to the FCC’s University Service Fund is currently before the Supreme Court in Federal Communications Commission v. Consumers’ Research). Any challenges to the Trump tariffs will initially be heard at lower levels but will likely get to the Supreme Court eventually. As discussed above, both the Supreme Court and lower courts have repeatedly upheld tariff statutes against nondelegation attacks. As a practical matter, many federal judges will likely be unwilling to check the president’s authority because they perceive his tariff policies as having just received a popular mandate and because they are reluctant to second-guess a presidential determination of an emergency or national security threat. As explained in our previous paper, one key issue to watch is whether lower-level judges are willing to preliminarily or temporarily block a presidential action that rests on a declaration of emergency or national security finding while the litigation plays out.

Warren Maruyama is former USTR general counsel under President George W. Bush and former White House policy staffer under President George H.W. Bush. Meghan Anand is a practitioner of international trade and investment law. William Reinsch is senior adviser and Scholl Chair Emeritus at the Center for Strategic and International Studies in Washington, D.C.

To read the full analysis, click here.

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Businesses and individual consumers are already stockpiling and preparing for increased prices, but once these tariffs are underway, where will manufacturing go? Many Chinese businesses are turning to neighboring regions. They now stand to gain major economic advantages if President Trump’s promised tariffs are implemented.

Tariffs are Taxes

While Trump has often said that tariffs are paid by the foreign manufacturer, that is not the case. A tariff is simply a tax on goods manufactured abroad. To simplify, under Trump’s plan, a Chinese product priced at $100 would face a 60 percent tariff upon arrival at the U.S. border. This means the American company receiving the product pays $60 to the U.S. Treasury. Thus, China receives $100 for the product, the U.S. government gets $60 for the tariff, and the business pays $160 total.

Companies then have a choice—they can pay the cost of the tariff and keep prices for consumers the same, increase the price by a percentage of the tariff to make some of the money back, or increase the price enough to cover the entire cost of the tariff. More often than not, they increase the cost to cover part, if not all, of the tariff.

In addition to the unintended consequences Trump’s tariffs will have on domestic consumers, his policies may also impact the economies of countries surrounding China. As American companies weigh their options for domestic or foreign manufacturing, Vietnam, Malaysia, and Kazakhstan stand to gain significantly if further tariffs are imposed on China.

The Impact on China and Surrounding Countries

Beijing’s response to trade shocks has been bolstered in recent years by implementing proportionate tariff increases and building relationships with surrounding nations. While the Chinese government tries to mitigate any potential impacts of the tariffs, many Chinese companies seek to set up shop elsewhere. This could have the intended consequence Trump is ultimately hoping for: to weaken China’s economy. But with Chinese businesses hoping to move away, countries like Vietnam, Malaysia, and Kazakhstan have a lot to gain by welcoming them with open arms.

Vietnam seems the most likely relocation for Chinese business given their positive trade relations with the U.S. The U.S.-Vietnam commercial relationship has flourished since the normalization of ties in the mid-1990s, making the U.S. Vietnam’s largest export market and a key source of foreign investment. Economic reforms (Doi Moi, in Vietnam) and Vietnam’s integration into global markets, marked by its entry into the World Trade Organization (WTO) in 2007, have driven remarkable progress—bilateral trade has surged from $2.9 billion in 2002 to over $139 billion in 2022. Vietnam is a rising star among Asia’s economies as it benefits from shifting global supply chains. It also stands as a growing market for U.S. agricultural exports, solidifying its role in regional trade and investment opportunities. Vietnam’s manufacturing wing and Chinese businesses have a lot to gain from these transitions.

Malaysia has played both sides since Trump’s initial promises for tariffs, courting both Beijing and Washington, D.C., in an effort to get ahead of potential tariffs. Leaders made headlines cautioning Chinese businesses against using Malaysia as a way to “rebadge” their products to avoid U.S. tariffs. In the public sector, Malaysian officials have been working out a deal with Singapore to provide “a special economic zone where companies will be given financial incentives to build factories.” Malaysia stands to gain significant economic ground if Chinese companies move to its shores, but could face repercussions in their relations with the U.S.

A somewhat surprising player is gearing up to take a piece of the pie as well: Kazakhstan. While not known for manufacturing, Kazakhstan could become a transshipment hotspot, essentially acting as a middle man. At the 29th United Nations Climate Change Conference (COP29), they strengthened their economic partnerships as “Kazakhstan, Azerbaijan, and China signed an agreement on the establishment of an intermodal cargo terminal in the Port of Baku in Alat.” China has a good relationship with Kazakhstan: 80 percent of China’s exports to Europe pass through Kazakhstan first, and this year their trade levels reached new records with 28 million tons of cargo transported. Expanding their transshipment operations in the wake of new tariffs could transform Kazakh involvement in manufacturing and open up new doors for infrastructure.

The Takeaways

The imposition of U.S. tariffs on China is tricky: while President Trump claims it could challenge China’s economic position, it creates new opportunities for countries around it. It will not impact the Chinese economy the way he thinks it will. Nations like Vietnam, Malaysia, and Kazakhstan are strategically positioned to capitalize on this shifting landscape, whether by attracting manufacturing, expanding infrastructure, or serving as critical transit hubs.

These developments not only bolster regional economies but also highlight the interconnectedness of global trade. As businesses adapt to the evolving tariff environment, the economic fortunes of China’s neighboring countries could rise, reinforcing the complex interplay between policy decisions and market dynamics. In the initial days of his presidency, President Trump engaged in tariff negotiations with countries like Canada and Mexico, reshaping dynamics with the U.S.’s own neighbors. As tariffs on China develop and change, his decisions will have reverberating impacts across Asia and the world.

To read this blog as it was published on The International Affairs Review website, please click here.

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• Faced with an aggressive new Trump administration, Europeans must understand the assets they can use as deterrents
• Across trade, technology, infrastructure, finance and people-to-people relations, the EU and its European partners hold “cards” they can play
• Policymakers should assess the relative merits of doing so, and the costs to Europe that this would entail
• The EU should create an economic deterrence infrastructure and strengthen its existing anti-coercion instrument

At the card table

“The European Union”, posted Donald Trump on his Truth Social account on March 13th, is “one of the most hostile and abusive taxing and tariffing authorities in the world”. For good measure, the US president added that the EU “was formed for the sole purpose of taking advantage of the United States”. The broadside was just the latest reminder that his administration’s trade wars against Canada, China and Mexico are heading Europe’s way, too. Already its 25% levy on steel and aluminium imports has hit the EU. At the time of writing, there appears to be a significant chance of Trump going far beyond these with sweeping multi-sectoral tariffs.

This is part of a wider story. The second Trump administration has challenged Europe’s territorial sovereignty (by threatening to annex Greenland), its digital model (by attacking its technology regulations), and its traditional political party systems (by courting radical European political forces). The president’s approach to America’s supposed allies on the continent evokes less a sober “strategic rebalancing” than the Ming dynasty’s tributary system, with European leaders expected to kowtow to the emperor in Washington. Trump also appears inclined to pressure Ukraine and its European backers into a peace deal favourable to Russia, and to withdraw significant parts of America’s security commitments on the continent.

The president has implicitly revealed why he thinks he can push Europe around like this. In a comment during his hectoring encounter with Volodymyr Zelensky in the White House on February 28th, Trump told his Ukrainian counterpart: “You don’t have the cards.” Cards are Trump’s euphemism for power and leverage. And to the extent that the American president is capable of threatening Europe across a series of fronts, this is a function of the cards he holds and his willingness to play them aggressively. In other words: Trump seeks to exploit Europe’s economic, technological, political and security vulnerabilities for coercive ends.

Europeans need to learn quickly how to play cards. They must assess the hand they have—Europe’s own sources of leverage over Trump and Trump’s America—and how to strengthen that hand. They must develop a clear and realistic plan of what they want to achieve in the transatlantic game of poker that is likely only just beginning. Where do they want to remain aligned with the US? Where do they want to rebalance the relationship? And where do they want to break from America? Then, Europeans will need to play their hand cannily in pursuit of those ends.

The first step in this process is to review that European hand of cards, what it would mean to play them and how Europeans should proceed with such decision making. Providing that review is the purpose of this policy brief.

Why deterrence matters

First, however, it is worth asking whether Europeans really should threaten to retaliate, and then do so if Trump follows through on his many threats.

After all, Canada and Mexico have deployed significant deterrents, alongside concessions and incentives, but nonetheless now face significant new tariff barriers. Trump evidently sees those not just as a form of leverage but as ends in themselves; a means of bringing manufacturing back to the US and a way to finance tax cuts. So seeking to raise their cost to an administration that sees the EU as an ideological foe may be a futile exercise. Europeans might wonder whether it is not better to let the costs of US tariffs rebound onto American businesses and households, and wait for Trump to reap a domestic backlash.

The EU and its European partners should indeed seek negotiated outcomes and hope that markets will eventually constrain the president. But neither of these considerations overrides the reality that Trump most fundamentally cares about cards—or in other words, power. So any European response will need to be rooted primarily in power rather than economics, rules or US domestic politics.

To use an analogy, nuclear weapons are bad for everyone. But if Vladimir Putin threatens to use them against Europe, that does not mean that Europe should simply pledge not to use such weapons in the hope that the Kremlin will recognise the lose-lose logic. Credible deterrence is needed. The same is true of Trump’s threats today.

Can Europe put up such deterrence? The US president does not appear to believe so. Asked at a press briefing what would happen if Europeans retaliated against US tariffs, Trump retorted: “They can’t. They can try. But they can’t. […] We are the pot of gold. We’re the one that everybody wants. […] We just go cold turkey; we don’t buy anymore. And if that happens, we win.” In other words: the US has “escalation dominance” over Europe; holding a superior position across a range of fronts—from military and diplomatic to economic and technological—that could make European retaliation a losing bet.

But the reality is more complex. If the essence of nuclear deterrence is mutual assured destruction (MAD), Europe needs to demonstrate another kind of MAD: mutual asymmetric dependency. Significant aspects of America’s prosperity and geopolitical power have for years and sometimes decades benefited from good relations with Europe. And Europeans command certain of these chokepoints. In other words: they do hold cards.

Indeed, they have played them before. In 2018, when the first Trump administration threatened tariffs on European cars, Jean-Claude Juncker as European Commission president travelled to Washington with a basket of threats and offers, successfully deterring the US president from escalating the dispute. To be sure, Trump is markedly more aggressive and unchecked in his second administration, so what worked seven years ago would likely be inadequate this time. But the EU too has evolved over the intervening years and developed a harder geoeconomic edge and new deterrent tools. For example, its Anti-Coercion Instrument (ACI, sometimes dubbed the “bazooka”) entered into force in December 2023 and provides the union with a structure for calibrating collective responses, such as counter-tariffs, to detrimental third-country policies.

It is a reminder that Europeans have cards, can continue to improve their hand and must now think hard about how to play them.

Assessing Europe’s hand

The following tables set out Europe’s options. They are split into five categories of measures: tariff and trade; services, intellectual property (IP) and digital; critical technology and infrastructure; financial; and people-to-people. Inevitably, there is some overlap between the categories. Equally inevitably, the tools in question are a dense thicket of acronyms; a brief, clarifying guide to which precedes each options table. The tables themselves indicate the rationale for using each measure, the actions and tools involved in doing so, and the prospective cost to Europeans on a scale of 1 to 10 (where 10 is the greatest risk of self-damage). That final point deserves particular reflection. None of the options listed involve no risk at all to European interests; but the degree of risk they present—and where in the EU they would fall heaviest—varies significantly.

Some further caveats are in order. Firstly, the damage scores are merely indicative, and the question of the potential harm done by each of these measures warrants further research. Secondly, this brief exclusively maps Europe’s technological and economic deterrence options. It does not cover “cards” linked to non-commercial aspects of transatlantic defence and security cooperation, like US military access to European territory, air space and waters, or Europe-US intelligence sharing. Thirdly, this brief does not recommend any options above others. Which cards to play will depend on the actions of the US administration, as well as wider European considerations about how to combine and phase responses, how to blend deterrence with concessions and incentives to compromise, and how to manage and mitigate the costs to European interests.

Europe’s cards

Tariff and trade measures

Other than the ACI, the most obvious trade and tariffs tool is the Enforcement Regulation, which enables the commission to impose countermeasures in the absence of a functioning World Trade Organisation (WTO) dispute settlement system. But the EU can also weaponise its agricultural and environmental standards to discriminate against American products; for example through its Farm to Fork Strategy (acts and regulations advancing food sustainability), its Emissions Trading Scheme (EU ETS), its Registration, Evaluation, Authorisation and Restriction of Chemicals regulation (REACH) and its Ecodesign for Sustainable Product Regulation (ESPR, which limits market access to non-European competitors failing to meet sustainability criteria).

Services, intellectual property and digital measures

Two new digital acts enable the EU to clamp down on American software and online platforms: the Digital Services Act (DSA) regulates online marketplaces, social networks and content-sharing platforms, while the Digital Markets Act (DMA) ensures that large digital “gatekeepers” respect the single market. The commission has significant tools to fine and otherwise sanction firms for non compliance with either. But further levers also apply in this area: the EU’s General Data Protection Regulation (GDPR) imposes stringent protection and privacy rules on data processing and transfers, and the Network and Information Security Directive (NIS2) is a unified legal framework upholding cybersecurity in 18 critical sectors across the EU. National authorities enforce these, with the EU playing a cross-border coordination role. Meanwhile Vertical Block Exemption Regulation (VBER) provides exemptions from the EU’s competition laws. Financial regulations too can weigh down US services firms. The Markets in Financial Instruments Directive II (MiFID II) and Markets in Financial Instruments Regulation (MiFIR) can convey and withhold passport-like rights for companies offering financial services and trading platforms in the European Economic Area. And the commission determines whether the financial regulatory or supervisory regime of a non-EU country is equivalent to the corresponding EU framework.

Critical technology and infrastructure measures

Alongside some of the levers already discussed (like the ACI and NIS2), the EU can use various foreign-policy, defence and energy regulation tools to restrict American access to its critical infrastructure. The Permanent Structured Cooperation (PESCO) framework for joint military capability-building projects, the European Defence Fund (EDF) coordinating defence research and interoperability, and now the new ReArm Europe financing initiative can curb European procurement from US firms. Other tools enable Europeans to discriminate against those firms on strategic grounds: Article 346 of the Treaty on the Functioning of the European Union (TFEU) exempts military procurement from some single-market rules, the European Union Agency for Cybersecurity’s (ENISA) certification process provides common cyber standards, the EU Dual-Use Regulation restricts sensitive technology exports, and its Foreign Direct Investment (FDI) Regulation allows for the screening of inbound investments. But other “civilian” mechanisms also apply in this area. The International Procurement Instrument (IPI) enables the commission to impose tit-for-tat market restrictions on firms from countries that restrict their European counterparts, and the recently implemented Foreign Subsidies Regulation (FSR) enables Europeans to target companies in receipt of foreign subsidies. The EU can likewise use its Methane Regulation (monitoring and reducing methane emissions) and the Carbon Border Adjustment Mechanism (CBAM, the carbon tariff on imports to the EU coming into full force in 2026) to tighten the screws on US firms. Where critical technology is concerned, the EU’s AI Act (the world’s first) and its Horizon Europe and Digital Europe research programmes can be turned against US technology giants.

Financial measures

The EU and its member states have various means of loosening their financial relationships with the US. Measures to reduce US debt holdings and dollar-denominated trade could harness the Capital Requirements Directive/Regulation (CRD/CRR) and Solvency II regulations, whose prudential standards encompass banking licences and risk weightings, and the European Central Bank’s (ECB) currency swap lines, which can incentivise euro-denominated transactions and collateral holdings to weaken the dollar. Financial market protections like the Anti-Money- Laundering (AML) directives targeting hot money and the Markets in Crypto-Assets Regulation (MiCA) governing cryptocurrencies can take aim at the (often Trump-friendly) US crypto scene.

People-to-people measures

In this area, too, the ACI can be useful. So too can the EU sanctions tool enshrined in its Common Foreign and Security Policy.

How to build Europe’s economic deterrence regime

While it is beyond the remit of this policy brief to specify which cards the EU should prepare to play, it does propose that the union create a proper framework for deliberating on and reaching those decisions. Despite the advances of recent years—including the adoption of the ACI, the FDI regulation and the FSR—EU institutions and member-state capitals still treat economic deterrence as a narrow, defensive matter of risk mitigation. Faced with an antagonistic US administration as well as other adversaries like Russia and China, it must now build more pro-active and politically coordinated structures for action.

1. Publish an economic power doctrine

The EU, led by the commission and major member states, must define a fully-fledged economic power doctrine that articulates how, why and for what purpose Europe will use economic power in the age of cards. The doctrine must make explicit that checking coercive threats, preparing a war-ready economy, building and maintaining positions of asymmetric leverage, and cutting technological and industrial dependencies are vital European security interests. It should assert the case for Europeans to pool and deploy economic power in pursuit of these interests, even if this means challenging international trade rules. Europe’s core interests are to promote economic growth and protect its citizens—not to uphold international trade rules per se. These ends have long overlapped, but the Trumpian revolution, China’s unrelating mercantilism, and Russia’s destructive ambitions have already decoupled significant parts of the global economy from such strictures. Europeans can only restore international rules and institutions from a position of power.

2. Appoint an economic deterrence tsar

Europe’s negotiations with great powers like the US or China cannot be fragmented. Inspired by Michel Barnier’s centralised mandate to lead the Brexit talks with the British government on behalf of the EU, the union must appoint an economic deterrence tsar reporting directly to the European Commission president and not bound by organisational silos.

This tsar should wield a broad, cross-sectoral mandate encompassing trade, finance, digital, and regulatory domains. They should have clear authority to coordinate rapid responses spanning those domains, and to implement a credible, unified communication strategy both within the EU and externally. In close coordination with an EU Economic Security Network (EU ESN) as proposed by ECFR’s Agathe Demarais and Abraham Newmann of Georgetown University, the economic deterrence tsar should be tasked with developing a unified map of Europe’s dependencies and leverage points across different policy domains. This knowledge is currently scattered across the commission and across member states.

3. Establish an economic deterrence steering group

Recognising that not all member states may fully embrace this agenda, those who do should form a “coalition of the willing” by establishing an economic deterrence steering group. The group would propose strategic directions for the deterrence tsar and ensure prompt, coordinated action across the bloc. This group could include heads of government from leading EU economic and technological powers (France, Germany, Italy, the Netherlands, Poland, Spain and Sweden) along with the presidents of the commission and the council. Trusted non-EU allies—especially the United Kingdom—should be integrated in an associate capacity, formalised perhaps through the planned EU-UK security pact, to align on responses to coercion and other pressures. This model would mirror how France, Germany, Poland, and the UK have taken a central role in planning European security guarantees for Ukraine in recent weeks.

4. ACI 2.0

Europe’s most potent deterrence tool, the ACI, requires two qualified-majority votes and prolonged consultations. It would benefit from a fast-track mechanism that can be triggered by the deterrence tsar, enabling emergency responses within a defined timeframe (for example, a 72-hour decision window). Simultaneously, the EU should redefine “coercion” within the ACI to encompass a broader spectrum of threats; including digital sabotage, political destabilisation, cyber attacks on individual companies and assaults on democratic processes.

5. Shoring up the power base

The EU should establish an economic solidarity fund, financed by revenues from tariffs, digital fines, and other geoeconomic penalties, to compensate member states or sectors that are disproportionately affected by foreign aggression or EU retaliatory measures. In parallel, it should target support measures—such as grants and low-interest loans—to help strategic industries that are vulnerable to foreign weaponisation build alternative sourcing and secure supply chains, following the example of Japan. The European Investment Bank could finance these programmes, with specific funding calls for proposals for de-risking industries.

The long game

Preparing robust defences against US aggression could, counter-intuitively, stabilise the transatlantic bond in the long run. If Europe can credibly show that bullying tactics will backfire or amount to mere Pyrrhic victories, it could over time weaken those factions in Washington that back Trump’s combative and lose-lose use of America’s cards. It could even change some minds. By playing a united hand, Europeans can disprove Trump’s claim that Europe cannot match him in upping the ante. But that will mean building the infrastructure needed to join up the relevant assets and decisions. Whether it is a game of British bridge, Dutch toepen, French belote, German skat, Italian briscola, Latvian zole, Polish baska, or Spanish el mus, victory at the card table usually comes from combining mutually complementary cards at the right time. Ultimately, Europe’s strength in this new age depends on its ability to consolidate its economic cards into one formidable hand and play that hand smartly, transforming individual assets into a collective trump card against coercion.

To read the full Policy Brief as it appears on the European Council on Foreign Relations website, click here.

To read the full Policy Brief as a PDF, click here.

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If Donald Trump’s tariffs remain mostly a threat, or are quickly resolved once they are in fact implemented, this tiff may counterintuitively have the potential to be one of the best things that has happened for Canadian prosperity and unity in a long time.

The visceral reaction to President Trump’s threat of so-called “economic warfare” has forced Canadians to take a hard look at our productivity challenges in general and high dependence on the U.S. market in particular. This has already generated political commitments from nearly every corner to break out of the malaise that has held us back from realizing our potential.

Following through could save Canada from economic devastation and boost our sovereignty; failing to make meaningful changes like those listed below will not only harm us but also risks fracturing the federation.

Premiers are committing to break down internal trade barriers, which is certainly overdue and could boost our GDP by billions. Economist Trevor Tombe has estimated the boost from eliminating them entirely could be higher than the 3 to 4 percent GDP contraction expected if the tariffs do materialize. Despite the sharp change in tone from our premiers, however, we should not expect all the jurisdictional turf involved in these provincial barriers to be ceded.

Fortunately, there has been a strong shift in tone in another critical area: streamlining regulations on major infrastructure projects that extract our resources and transport them east-west.

Across the political spectrum, and even in Quebec, there is suddenly a great deal of life in what seemed a moribund area of economic opportunity. As politicians and their economic advisors now desperately scan Canadian industries for means of boosting our productivity, hostile policies holding back resources—especially oil and gas—stand out.

In the last few months, many have come to realize that oil and gas is Canada’s largest industry by far, but that we take a significant discount from being dependent on selling to one customer. As talk about shutting off those energy sales built up, many also came to realize how dependent central and eastern Canada are on the U.S. because Canada has not prioritized energy independence.

Arguments that some of us have been making for years around the role Canada should play in meeting the demand for LNG in Europe and Asia are also finally getting through.

These breakthroughs are welcome, but as the major parties head into what suddenly appears to be an imminent election, Canadians need to demand more than platitudes.

Here are ten concrete proposals that will make clear to domestic and international investors that we are serious about boosting our productivity and becoming a resource superpower.

1. Repeal openly hostile measures

These include the West Coast tanker ban (C-48), 35 percent emission cuts for oil and gas by 2030, net-zero electricity regulations and electric vehicle mandate by 2035, and the “greenwashing” gag law (C-59).

2. Commit to making Canada an LNG superpower

Nothing Canada can do to reduce emissions comes close to displacing the growth of coal in an electricity-hungry Asia with our LNG. Nothing Canada does in foreign policy has as much muscle behind it as getting LNG to our European allies. They would also bring prosperity to both our East and West.

3. Start building a Northern Corridor

With a mainline from Prince Rupert to the “Ring of Fire” and spurs to the north and east, nothing would transform Canada into a resource superpower more than a northern corridor. It would include an added rail line, easement for pipes, trucking routes, and possibly power lines to link the hydro centres in central Canada with B.C. All the regulatory hurdles would be smoothed out in such a corridor, and the resource potential of the people and resources of the north would finally be unlocked.

4. Empower true partnerships with Indigenous communities

The federal government recently adopted a version of Alberta’s very successful Indigenous Opportunities Corporation, which backstops loans so Indigenous groups can be full partners in infrastructure projects, instead of “a problem to be managed.” The $5 billion federal cap is only slightly larger than Alberta’s $3 billion and should scale up with demand. Most of Canada’s resource opportunities are in regions with Indigenous communities eager to improve their prosperity, and willing to help model resource extraction and transportation in ways that benefit them long-term.

5. Use expediting powers in a revised Impact Assessment Act (IAA/C-69)

The IAA should be a blueprint for success not a scarecrow for investors. Among many changes, the 300- and 600-day review timelines must be cut significantly. Provisions in the existing IAA (especially section 37) to demand extremely short timelines for environmental and other reviews must be used aggressively when projects are deemed in the national interest.

6. Regulatory sandboxes

To avoid work stoppages, the government can put regulators on-site to mitigate issues with practical steps and document those that cannot be fixed quickly.

7. Injunctive relief

Whether under the regulatory sandbox model or separately in a revised IAA, projects in the national interest should be insulated from court-directed stoppages. Compensatory damages would still fully apply, but activist lawfare cannot be used to balloon project timelines and costs.

8. Use ministerial authority

Both the species at risk and migratory bird acts give the Environment minister the power to prevent projects from being held up for incidental impacts. TMX was plagued by delays from things as minor as a bird setting up a nest near a worksite alongside the Yellowhead highway. There is a common-sense balance that must be struck.

9. Defer to provincial assessments

When site-specific projects like mines or refineries are supported by a province experienced in regulating them, the federal government should not apply the IAA; duplication is eliminated by using the substitution power.

10. Dedicate federal funds to northern prosperity and energy security

A northern corridor will be expensive to establish, as would be an oil pipeline to eastern Canada. These (unlike tens of billions to foreign companies for battery plants that may not materialize) are nation-building projects on par with our first transcontinental railroad. While many projects (i.e. critical mineral mining or LNG plants) mostly just need government to get out of the way, if we want Canada to seize this moment and lay the groundwork for our security and prosperity in the coming decades, some projects will come with a hefty bill.

Conclusion

While the costs for a corridor are worth debating, streamlining regulations, committing to LNG, and empowering Indigenous communities are clearly part of what is needed to meet this moment of economic peril. We can no longer be dependent on the U.S. to be Western Canada’s main energy customer and Eastern Canada’s main energy supplier.

We can also no longer afford to pretend that our highly productive energy and mineral resources are not in strong demand around the world, or that they are too “dirty” for us to lean in to. Western Canadians have felt entirely marginalized by this kind of naïve attitude toward the resource sector. If the recent dawning of clarity about its value and potential dissipates as quickly as it arrived—or worse, if the West’s energy sector is made to bear undue harm in a trade war—separatist sentiment will surge.

Political leaders are more focused on prosperity and unity than we have seen in our lifetimes. Given all that is at stake, Canadians must demand not only that it be the focus of this election, but also that the next government fully follow through.

To view this commentary as it was published on The Hub website, please click here. 

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What does China want?

As this tit-for-tat cycle continues, the most alarming outcome for Washington is not an escalation that pushes the relationship over the precipice. Beijing does not want that—and more importantly, President Donald Trump, U.S. businesses, and U.S. consumers do not want that either. Counterintuitively, the most dangerous outcome is a negotiation that ends in a “grand bargain” that goes beyond trade issues to encompass technology and security issues. Beijing’s overriding goal is for the United States to stay out of its way as it accrues power, wealth, and influence. In the negotiations that are likely to ensue in this trade war, Beijing would likely have three tiers of issues on which it would seek a rollback of competitive U.S. policies that have been at the heart of both the first Trump administration’s and then the Biden administration’s China policies.

First, Beijing would likely seek to loosen the scrutiny of China’s investments into the United States that intensified during the first Trump administration, and of the restrictions on U.S. investments into China put in place by the Biden administration. Beijing wants to go “back to the future” of the Obama years when two-way foreign direct investment spiked.

Second, Beijing would likely table trade-adjacent issues by seeking a rollback of the technology restrictions that the first Trump administration imposed on China and then the Biden administration expanded and systematized. Even with those restrictions in place, Chinese companies like DeepSeek are still challenging the U.S. lead on crucial technologies like artificial intelligence, demonstrating China’s formidability and resilience as a competitor even in the face of its economic slowdown.

Third, since Beijing’s goal is to get the United States out of China’s way, Beijing could look to make progress on its long-standing objective of undermining U.S. security commitments in the region, especially in contested areas like the Taiwan Strait and the South China Sea. Beijing may calculate that it can appeal to Trump’s enduring suspicion of U.S. security commitments to get him to trade away U.S. pledges to defend partners in return for Chinese promises of future economic actions.

How will China approach trade negotiations?

Despite the real weaknesses in China’s economy, Xi Jinping will have some advantages in negotiations with the Trump administration. Most notably, Xi will find himself in the familiar position of a Chinese ruler considering a supplicant’s petition. Indeed, over the last 25 years, a fundamental imbalance has defined the U.S.-China relationship: whether prioritizing competition or cooperation with China, the United States constantly, and too often haplessly, beseeches China for help on a wide range of issues: North Korea’s and Iran’s nuclear ambitions; the flow of fentanyl precursors; Russia’s war on Ukraine; and perhaps most persistently, the nonmarket practices endemic to China’s economic policy. The laundry list of U.S. requests only grows longer as China extends its global reach, particularly because China seldom does much beyond pantomime a constructive role. The Trump administration should not expect Beijing’s approach to this coming round of negotiations to be any different.

We should also expect China to revive the defensive principle of “no concessions; no escalation.” In the first trade war, Beijing made few meaningful concessions to Washington, and as has been widely documented, never made good on the meager commitments it made in the Phase One trade deal. At the same time, Beijing largely prevented the trade war from expanding and meaningfully impinging on China’s macroeconomic trajectory. Moreover, Xi can afford to drag out trade negotiations for as long as is needed and may judge that the Trump administration will want some kind of deal or “win” to show for its efforts before the U.S. midterm elections next year. Xi and his team are likely very aware of this point—and of the fact that the first trade war concluded with Trump insisting that his team conclude a deal. Finally, unlike the first trade war, U.S. officials are unlikely to have a Chinese counterpart like Liu He—who had studied in the United States and was a well-known advocate for economic reforms. The most likely Chinese negotiator is Vice Premier He Lifeng, a Xi acolyte who lacks Liu’s reformist impulses and is more focused on implementing Xi’s economic policies than correcting them.  

It is not clear that an even more expansive set of tariffs will prompt Xi to change course and undertake the reforms that the Trump administration wants to remedy the U.S.-China trade imbalances. Trump’s claims during the campaign that he would impose 60% tariffs on China inured China to the smaller tariffs announced thus far. Moreover, since Xi has eschewed much-needed economic reforms in the face of China’s existing headwinds, an external push seems unlikely to compel him. In fact, Xi may be even more loath to change course in response to outside pressure now that he is well into his third term. The three “D” problems afflicting China’s economy today—demography, debt, and deflation—have been born of decades of domestic dysfunction; they are not the result of U.S. trade actions.

How should Washington navigate these challenges?

Given these challenges, it would behoove the Trump administration to abide by four best practices as it prepares for tough negotiations with Beijing.

Be clear about your key objective. Whereas China has a clear objective going into the trade war—to do the bare minimum to get the Trump administration off its back on trade issues—it is still not yet clear what exactly the Trump administration wants to do. Many rationales have been offered, from a crackdown on fentanyl precursors to rectifying the trade imbalance to pushing Beijing to undertake structural reforms that would run counter Xi’s long-standing economic policies. Beijing is uncertain about the administration’s objectives, which has probably fed its reluctance to have Xi engage directly with Trump on these issues. Meanwhile, the Trump administration’s consideration of additional tariffs might seem from the outside that these are tactics without a strategy. Identifying clear, parsimonious, and mutually compatible objectives will help discipline the administration’s approach.

National security is non-negotiable. The administration should make clear to its Chinese counterparts early and often that issues related to national security are not up for discussion—particularly the U.S. regional military presence and the restrictions on high technologies that could advance China’s military modernization. This is the best way to realize the administration’s stated policy of “peace through strength.” The administration’s initial executive orders (EO) have revealed its position on some key issues that China might try to bring up in a negotiation. For example, the EO on American First Investment Policy calls for enhanced scrutiny of Chinese investments, while the EO on America First Trade Policy tasks the Departments of Commerce and State with identifying loopholes in existing export controls. The challenge seems to be that Trump may not be as committed to these positions as his staff—as reflected in his statement that would welcome more Chinese investment, and his rollback of sanctions on Chinese telecommunications firm ZTE during the first trade war.

Be prepared to walk away. As much as Trump likes to make a deal, he has demonstrated a willingness to walk away from a bad one—as he did in Hanoi during his meeting with North Korean leader Kim Jong Un. Rather than pursue additional iterations of the Phase One trade deal, which was meager in both conception and execution, Trump and his team should be prepared to walk away from the table. Demonstrating a willingness to walk away will upend Beijing’s assumption that the Trump administration needs a “win” from the trade war with Beijing before the U.S. midterm elections—thereby enhancing U.S. leverage.

Leave the haggling to staff. A major risk is that Xi is not Kim: if Trump were to walk out of a meeting with him, Xi may take it as a personal affront, leading to a collapse in bilateral diplomacy for a sustained period. The pause would likely rattle world markets and be even more prolonged and tense than the hiatus after the Biden administration shot down a Chinese spy balloon in 2023. The best way to mitigate the risk of such fallout—and to preserve the U.S. ability to walk away from negotiations without more dangerous consequences—would be for the administration to leave the details to Trump’s advisors and staff and preserve the president’s direct line to Xi to close the deal. Although Trump seems to want to negotiate directly with Xi, Xi is unlikely to want the same for fear that the conversation could break down into an embarrassing episode or mutual recrimination.

The Trump administration should be mindful that when it comes to such negotiations with China, even when you “win,” you lose. The risk for the administration is that, after a protracted negotiation, the United States gets a series of Chinese promises to reform its nonmarket practices—much as Beijing promised when it entered the WTO. And by the time anyone realizes that China has failed to implement any of those promises, the Trump administration’s time will be up—and China will begin the cycle anew with a new administration.

To read the full commentary as it was published by Brookings, click here. 

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Historically, the Customs and Border Protection (CBP) agency offered long lead times and clear guidance when implementing new regulations, allowing stakeholders to prepare and adapt. But recently, that pattern has shifted drastically. Instead of months or even weeks of preparation, new rules and changes are getting announced, often with just days of notice, and in some cases, rescinded after brief implementation periods. The result is chaos.

The impacts are immediate and far-reaching. The constant barrage of updates — such as tariff changes, new de minimis rules, and complex HTS (Harmonized Tariff Schedule) associations — has pushed customs workloads to the breaking point.

Since January 20, 2025, a number of critical rulings have been issued, underlining the pace of change in U.S. trade policy. In just the first 30 days, new rules include:

• Reciprocal tariffs on countries that impose tariffs or non-tariff barriers on U.S. goods
• 25% tariffs on steel and aluminum imports
• 10% tariffs on Chinese imports
• 25% tariffs on imports from Canada and Mexico
• Suspension of the De Minimis exemption for Chinese imports
• Reciprocal tariffs targeting the European Union, India, and Japan

For importers and exporters, these are more than just a nuisance. They represent an existential challenge — how can they process shipments, ensure compliance, and maintain accuracy when the rules are constantly shifting, often with little or no notice? Unfortunately, this kind of work requires hands-on effort by well-trained people, who are in short supply.

A New Class of Hurdles to Overcome

The challenges brokers are facing because of the new trade policies and the way they are being implemented are both technical and operational.

The most pressing issue facing operators is there has been little or no time to prepare for the new rules. There was no vetting process to ensure their systems were ready for the new tariff codes, and brokers find themselves in a situation where they must constantly scramble to implement updates without a clear roadmap.

Burdensome process updates include the shift in HTS number associations duty miscalculations. Brokers used to only associate one 99 tariff number for certain items. Now, for any item that previously had a 99 tariff, a second tariff must be added.

Changes to the de minimis rule, which exempts certain low-value goods from duties, could also have staggering implications on imports from China. By some estimates, $180 billion in trade falls into the de minimis exemption threshold, so this has far-reaching implications for e-commerce, sourcing strategies and the air freight industry at large.

The de minimis value threshold previously set at $800, will likely come down, or be eliminated completely. The changes are initially focused on imports from China, but that could be expanded to other countries, or the thresholds could be changed, potentially many times.

Brokers who previously relied on large spreadsheets to manage small shipment data now face significant issues when processing this data under the new rules. There is simply not enough time or people on hand to manage the workloads.

One very large global freight forwarder recently said, “We had people working through the weekend to check their entries. I’ve never seen anything like this in my 40 years of working with customs.”

The Unlimited Pool of AI “Workers”

Amid this chaos, AI is emerging as a crucial tool to streamline operations and mitigate the impacts of regulatory changes. While AI can’t replace a broker’s expertise, it can handle redundant data entry, lookup and processing tasks, which allows human operators to focus on strategic decision-making.

Today’s regulatory environment demands that brokers remain adaptable and up to date. AI technology that integrates directly with transportation management systems or Excel outputs can keep teams informed and ready to act without having to overhaul existing workflows.

AI can quickly identify and apply the most up-to-date HTS codes, and do it within the context of existing workflows, significantly reducing the time spent on manual lookups. Through automated lookup capabilities, AI ensures that the correct tariff information is used, helping brokers avoid costly mistakes and delays.

One of the most time-consuming aspects of the job is data entry. With the shift to more complex HTS code associations and the volume increases, brokers are spending far more time entering data into their systems. AI can help reduce this manual burden by streamlining classification and entry processes, allowing brokers to process more shipments in less time.

By automating routine tasks and ensuring that teams remain agile and adaptable, AI-enabled technology provides much-needed relief for brokers navigating these regulatory shifts, which is why it is one of the more mature business use cases in global logistics today.

Charting the Road Ahead: Doing More with Less

As the demand for trade compliance continues to grow, brokers must find ways to do more with fewer resources. AI offers a practical solution — by providing unlimited data processing horsepower, allowing brokers to manage increased workloads while maintaining compliance and accuracy.

In a landscape where the only certainty is uncertainty, AI’s ability to adapt, streamline, and support decision-making will be essential to keeping businesses on track. Most of the early success stories are about manual, redundant task automation at scale. If this isn’t the moment to move full steam ahead, it’s hard to know what is.

While the chaos surrounding new trade regulations may not slow anytime soon, those who embrace AI will find themselves better equipped to handle whatever the next change brings, which will likely happen daily for the foreseeable future.

To read the blog as it was published on the SupplyChainBrain website, click here.

Greg Kefer is chief marketing officer at Raft AI.

The post AI at the Helm: Navigating the Shifts in U.S. Trade Policy appeared first on WITA.

On February 13^th, the Trump administration presented the Fair and Reciprocal Tariff Plan (FRTP), signalling that it is ready to end the global trading system as we know it. Financial markets greeted the proposal with a shrug, lost in the flurry of Trump’s executive orders. But in terms of consequences for the global economy, it is the most significant and devastating of Trump’s proposals.

What is being proposed?

Because of its name, many have interpreted the FRTP as a mirroring exercise in which the US would match its import tariffs with those faced by US exports in the partner country. The combination of countless products across a wide swathe of trade partners would lead to a huge number of different rates. In fact, such an exercise would be unworkable, as the US would have to manage over 2.6 million different tariff rates, depending on the product and the country. Even if the administrative complexity could be overcome, such a proposal would only raise tariff rates by a very modest amount. Trump’s plan would hit developing countries such as Vietnam and India hardest, since they tend to have higher tariffs. The consequences for Europe would be limited, as the average EU tariff rate on US imports is only half a per cent higher than US tariffs on EU imports. The EU could slightly lower its tariffs to iron out the wrinkle.

The problem is that Trump’s actual proposal is both simpler and more radical. According to White House officials, “the expected result is an individual additional tariff rate for each country or trading partner, rather than attempting to set corresponding tariff rates on every product.” Moreover, instead of just mirroring tariff rates, this overall additional tariff rate would be based on a combination of five factors:

1.      Tariffs levied on US imports;

2.      Taxes deemed unfair, extraterritorial or discriminatory, including value-added tax (VAT);

3.      Non-tariff barriers, harmful policies like subsidies and regulatory requirements that impose costs on US businesses operating  abroad;

4.      Exchange rate policies that interfere with market values; and

5.      Any other practice that interferes with market access or fair competition.

The potential scope of these measures is extraordinarily broad and represents a dramatic attempt to intervene in other countries’ internal regulation and taxation. It would de facto condition access to the US market on trading partners’ compliance with US preferences.

The US is now seeking to condition access to the US market on subordination to US preferences on regulation and taxation. The EU cannot accept this.

Value-added tax is used by 170 countries around the world to raise revenue for government services – but not in the US. VAT is trade neutral, as it applies equally to imported and domestic products. When goods cross the border, an adjustment is applied so that VAT is levied on imports while a rebate is given on VAT already paid for exported products: this ensures that VAT is only levied on domestic consumption. But in Trump’s view, VAT with its border adjustment amounts to a tariff. The idea that VAT should be treated as a tariff is without merit and economically illiterate; viewing VAT as a tariff would target Europe in particular as European countries have high VAT rates of around 19-21 per cent.

The EU is also particularly exposed to Trump’s threat of imposing tariffs in response to non-tariff barriers and regulatory requirements. The US has a long list of complaints about EU regulation, from long-standing issues like the EU’s sanitary and phytosanitary regulation and the General Data Protection Regulation (GDPR) to more recent regulations such as the AI Act, the Digital Markets Act, the Digital Services Act, the Corporate Sustainable Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). All of these can be said to impose costs on US business that trade with the EU – as can virtually any regulation that affects businesses in general.

Europe is less exposed to Trump’s threat to retaliate against ‘unfair’ exchange rates, which is more likely to target Asian countries, particularly China. The euro has a free-floating exchange rate, whereas Asian countries intervene more heavily to steer theirs. The last point of the Trump plan is perhaps the most dangerous: “any other practice that… interferes with market access or fair competition”. That is a catch-all that would give the US wide latitude to set tariffs based on its assessment of other countries’ economic policy. As with exchange rates, this likely targets Asian practices that lead to wage compression and more competitive exports. But the scope is broad enough for it to also target the EU.

What could this mean in practice?

The FRTP has not been finalised yet. The next steps are a series of reports due on April 1^st from the US Trade Representative, the Department of Commerce and other US agencies evaluating the impact of other countries’ trade practices. Next, these agencies will send the president joint policy recommendations, and the Office of Management and Budget will provide an evaluation by July. As there is no obvious way of translating the five factors mentioned in the Plan into a single additional tariff for each country, the actual tariff rate would in practice be at the complete discretion of the presidency. The timeline also means there is time for the EU to prepare and persuade Trump to change course.

If we are to take Trump seriously on VAT, he could impose tariffs of at least 20 per cent on the EU on that basis alone. A 20 per cent tariff would lead to an estimated fall in EU goods exports to the US of some $200 billion per year. This represents a full third of the EU’s current goods exports to the US, worth about 1 per cent of the EU’s GDP. As the dollar would strengthen and EU services are not affected by tariffs, the fall in goods exports would be somewhat compensated by increased services exports, bringing the net loss down to $166 billion. If regulatory barriers are also penalised, both the tariff and the economic consequences would be greater still.

Given the weakness of the European economy, this would certainly cause a recession. If the US gives all its partners the same treatment, the global effect would potentially be worse than Trump’s campaign promises of a 20 per cent general tariff and a 60 per cent tariff on China. In effect, average US tariffs would surge to their highest levels since the Great Depression, stoking inflation while a surging dollar would also harm US exports.

The plan would end de facto US participation in the global trading rules under the WTO, where each country faces the same tariff rate under the so-called most-favoured nation rule, except for free trade agreements with reciprocal commitments. Traders and partner countries would no longer benefit from predictable trading conditions, as US tariffs could change at a moment’s notice.

Will the US go through with it?

The question is whether the Trump administration will go through with this plan. Trump has a history of bluffing and cutting deals, as he did with both China and the EU in his first term. However, the second Trump administration should be taken seriously and literally, both on foreign policy and economic policy. The fact that tariffs on Canada and Mexico were suspended for one month pending negotiations is cold comfort. Trump’s demands for those countries were related to border enforcement and easier to find compromise on – and the tariffs are still set to go into effect on March 4^th. Meanwhile, the 10 per cent tariff hike on China has already been implemented. Trump 2.0 is driving a harder line on trade than in his first term: both the global steel and aluminium tariffs and the tariffs on Canada, Mexico and China are more comprehensive now and do not entail any exemptions as in the past.

The US administration is now making demands that are both specific and unattainable. In 2023, VAT accounted for over 15 per cent of government revenue in the EU, and it is out of question for fiscally pressed European countries to make any concessions on it. Trump also complains about EU tech regulation hitting US big tech, but rolling it back would amount to letting the US dictate the boundaries of acceptable regulation in the EU. Neither practicality nor principle allows for surrender to US demands.

How should Europe respond?

For Europe, a diplomatic approach remains the best solution. The EU should signal its willingness to increase purchases of American natural gas and defence kit – which in any case will be necessary in the short run while Europe builds up its own defence industry. Showing openness to discuss how recent regulation is implemented could help to find a mutually beneficial compromise. The regulatory simplification effort underway in Brussels, affecting environmental and sustainability regulations like the CSRD and the CSDDD, could be packaged as a deal with the US to avoid a trade war and give Trump a ‘win’.

To avoid a trade war, the EU could point to simplifications of regulations that it’s already planning to undertake – this could give Trump a ‘win’ without substantial concessions.

The EU could also consider adjusting certain politically significant tariffs. Reducing EU import tariffs on cars from 10 per cent to the US level of 2.5 per cent has already been publicly discussed. While a political ‘win’ for Trump, this cut in car tariffs could undermine the EU’s recent tariffs on Chinese electric vehicles if the EU, in compliance with WTO rules, cuts tariffs for everyone. With the EU and the US now in talks over US steel and aluminium tariffs, the EU should ensure that these talks also cover reciprocal tariffs, so that the EU does not give up concessions for steel and aluminium, only to be forced back to the negotiation table over reciprocal tariffs for yet more concessions.

At the same time, the EU must be firm and cannot show weakness. That means that the EU needs credible retaliatory measures. The threat must be compelling and credible enough to force the US to the negotiating table to conclude a deal – and it should also help mobilise American companies against tariffs. The European Commission will focus its possible retaliation measures on politically sensitive industries in states that are vulnerable for Republicans – past examples include orange juice from Florida, jeans, and Harley-Davidson motorcycles.

In trade wars, the nation that is more reliant on exports has a disadvantage. Tariffs threaten trade in goods, in which the EU has a large and persistent surplus with the US, worth €158 billion in 2023. Given the breadth and magnitude of the tariffs proposed, it would both be economically destructive and mathematically nearly impossible for the EU to respond to US tariffs exclusively with tariffs of its own. With EU goods exports to the US so much higher than US exports to the EU, the EU simply has fewer targets – as long as its response is limited to goods.

The logical step for the EU would therefore be to activate the Anti-Coercion Instrument (ACI) that was passed in 2023, largely as a response to Chinese policies. The ACI is meant to counteract economic coercion from foreign states that seek to force the EU or member-states to change policy. Since the US is explicitly seeking to coerce the EU to change its VAT regimes and regulatory policies, activating the ACI would give the EU wide latitude to design countermeasures. Under the ACI, the EU can enact tariffs, but also outright restrictions on exports and imports, measures affecting trade in services, access to public procurement, foreign direct investment and intellectual property rights. These measures could be generally targeted against the US through the ACI’s Article 7, or targeted at specific persons or corporations close to the US government through Article 8. Activating the ACI would allow for more creative and targeted responses to Trump’s tariffs, as well as evening the playing field by targeting services where the US runs a trade surplus with the EU of more than €100 billion.

Extending threats beyond tariffs would reduce the EU’s tactical disadvantage – but it would also increase the stakes. Under the ACI, the EU could target US services, including financial services or the tech sector. Moreover, the EU could even nullify US intellectual property rights in Europe, for anything from patents to media rights. These are sectors that traditionally have not been touched by trade conflicts. Targeting them would be a significant, but potentially effective threat of escalation.

However, trade remains economically beneficial, and trade restrictions are acts of self-harm for Europe’s open economy. The EU will think carefully before taking measures which would also cause severe disruption for the European economy – many Europeans work for US software firms and banks, and many US tech companies deliver services that would be difficult to replace. Although the EU may threaten some general measures to achieve a proportional response to US tariffs, the EU should focus on surgical strikes on high-visibility targets that would be politically painful, but with limited economic cost to the EU.

The EU should focus any retaliation against the US on high-visibility, symbolic targets and avoid vital services that Europeans rely on.

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