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.

The post How U.S. Tariffs on China Might Bolster Other Asian Economies appeared first on WITA.

• 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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As U.S. companies launched programs to move manufacturing to low-wage countries, China-based suppliers became an integral part of their supply chains. While the two powerhouse economies became more interdependent than ever, the U.S. trade deficit grew at a compound annual growth rate of almost 5 percent over the last 20 years. This sustained growth led to a substantial trade imbalance, reaching around US$380 billion per year by the early 2020s.

As U.S. policymakers debate ways to address China’s global political influence, trade with China has become a complex issue involving not just political and national security dimensions but also one that involves the economic interests of large U.S. companies.

History Provides a Key

This isn’t the first time the U.S. has stood toe-to-toe with an economic adversary, leading to strategic economic and technological efforts.

After World War II, the U.S. launched the Marshall Plan, providing economic aid to Western Europe to prevent the spread of communism and rebuild markets for American goods. This not only stabilized European economies but also created a more integrated global economy, boosting demand for American exports and fostering U.S. economic growth.

Simultaneously, the U.S. played a crucial role in establishing the Bretton Woods Agreement, setting the U.S. dollar as the global reserve currency, creating the International Monetary Fund (IMF) and the World Bank, and recommending the creation of the International Trade Organization (ITO). This framework stabilized the global economy and gave the U.S. significant economic leverage.

Together, the Marshall Plan and the Bretton Woods Agreement helped the U.S. confront its adversaries, promote international trade, encourage foreign investment and expand the global reach of American companies.

Similarly, the space race of the 1960s, launched by President John F. Kennedy, not only sent astronauts to the moon but also fueled a tech boom, positioning the U.S. as an innovation leader developing high-value IP in microelectronics and manufacturing.

The Role Of Tariffs

In 2018, the Trump administration imposed Section 301 tariffs on approximately $50 billion worth of Chinese imports, targeting sectors like electronics, machinery, aerospace and IT. These tariffs followed a U.S. trade representative investigation that found China guilty of unfair trade practices, including IP theft and forced technology transfers. China retaliated with tariffs on U.S. agricultural products, causing market volatility and uncertainty.

Although politically significant, this tariff escalation was a missed opportunity for the U.S. and China to foster fairer trade practices. Evidence suggests that companies advocating for equitable trade practices, rather than relying on protectionist tariffs, often appear stronger.

Consider Tesla’s experience in China. In 2020, China accounted for approximately 22 percent of Tesla’s global revenue, with the company’s sales growing at a robust 33 percent year over year. However, Tesla’s market share in China dropped from 10 percent to 6.5 percent, largely due to fierce competition from local electric vehicle (EV) manufacturers. Instead of seeking tariff protection, Tesla responded to this competitive pressure by ramping up production of an upgraded Model 3, specifically tailored to the Chinese market.

In the broader context of the U.S.-China trade war, Tesla’s experience highlights a critical point: While tariffs may offer short-term political leverage, a more forward-looking approach prioritizes creating transparent policies that promote fair trade competition and innovation across borders. This would not only help U.S. companies but also contribute to a more stable and prosperous global economy.

How Companies Can Win

In these uncertain times, it might seem logical to “wait and watch” for the policy approach. However, companies that view the trade war with China as a reason to rethink their supply chain can develop a resilient supply chain and form alliances that respect intellectual property while safeguarding U.S. economic and security interests.

Consider these actions:

Reassess your supply value chain to create better response. Steps include mapping the value chain, identifying elements where China-based suppliers play a role, and measuring the economic value added by China-based suppliers.

Visibility into the various value chain levels will enable data-driven decisions while allowing companies to reassess and restructure their supply chains in response to geopolitical and economic dynamics.

Rethink your manufacturing strategy to build a resilient supply chain that fits the growth strategy: China’s rapid economic growth has resulted in a sevenfold increase in income, reducing the labor cost advantage between its manufacturing hubs in urban areas to those in advanced industrial economies. This presents an opportunity for supply chain organizations to rethink manufacturing locations, avoid tariff-prone China, access high-growth markets, and promote domestic U.S. growth.

For consumer goods, a digitally enabled assembly line could be spread across countries with lower labor costs and growing local demand. In 2017, localizing iPhone manufacturing in India allowed Apple to tap into the world’s fastest-growing smartphone market of about 400 million consumers. In addition, by utilizing a skilled Indian labor pool at a third of the cost in China, Apple reduced its supply chain dependence on China, which previously handled 95 percent of iPhone production.

The production of goods critical to U.S. national security or essential to public welfare, however, should be relocated back to the U.S — at least partially if not entirely. The invocation of the Defense Production Act to meet the demand for medical ventilators and N95 masks during the pandemic should serve as a wake-up call: Investing in domestic manufacturing will not only accelerate development of technologies but also create a skilled domestic workforce.

Reorganize and upskill your supply chain teams to sense and respond rapidly. The benefit of moving away from China goes beyond merely diversifying sourcing and manufacturing locations; it’s an opportunity for U.S. companies to form Keiretsu-like partnerships. A Japanese business model, Keiretsu refers to a network of diverse supply chain-related businesses that have close relationships and shareholdings. The U.S. government could play a key role in fostering a Keiretsu-like network, collaborating with U.S. businesses to align economic and foreign policy based on shared social values.

To achieve this, companies must invest in talent that can monetize data and IP as a strategic asset. These professionals should excel in forming alliances with like-minded U.S. companies, while driving global market expansion. By embracing “ally shoring” (partnering with companies in friendly countries instead of offshoring to less favored ones), U.S. companies can strengthen economic ties with trusted nations, aligning their business strategies with U.S. government policies.

Reformulate products with alternate materials as part of contingency planning. This short-term strategy requires investment in R&D and building inventory.

R&D efforts should focus on identifying alternatives to commodities dominated by China. For instance, China produces 70 percent of the world’s mined rare earth elements (REEs) and 87 percent of refined REEs, which are essential for such industries as oil refining. During a trade war, these commodities will likely be used as leverage, which can harm industries in both countries.

To avoid the impact of volatility, companies should be proactive. Sourcing professionals need to predict tariff changes and limit price increases to prevent suppliers from exploiting the situation or passing on costs to customers.

To read the full article as it appears on the Institute for Supply Management Website, click here.

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Washington (March 12, 2025) – The Board of Directors of the Washington International Trade Association (WITA) is pleased to announce that it has elected Nasim Fussell as the new Chair of WITA’s Board of Directors. Steve Lamar, the President and CEO of the American Apparel & Footwear Association, who served as WITA’s Board Chair since 2004, will continue to serve as a member of WITA’s Board of Directors.  

“I am incredibly honored to step into the role of Chair of the WITA Board of Directors. Steve Lamar’s leadership has been instrumental in shaping WITA into a premier forum for trade dialogue and policy discussion,” said Nasim. “Steve has been a mentor and friend to so many of us in the trade community, generously sharing his insight and guidance over the years. I look forward to building on the strong foundation laid by Steve, and continuing to advance WITA’s mission to provide a neutral forum for the open and robust discussion of international trade policy.”

Nasim Fussell, WITA’s new Chair, is a Senior Vice President at Lot Sixteen, where she leads the firm’s trade practice. On Capitol Hill, Nasim served as the Chief International Trade Counsel for the Senate Finance Committee under Chairman Chuck Grassley and Deputy Chief International Trade Counsel under Chairman Hatch, as well as Trade Counsel to the House Ways and Means Committee, where she worked for Chairmen Brady, Ryan, and Camp. 

“Our whole team is excited to work with Nasim, and we are confident that she will be a worthy successor to all those whose leadership helped build the organization,” said Kenneth Levinson, WITA’s Chief Executive Officer. “Steve has been a tremendous leader in three transformational phases of WITAs growth,” continued Ken. “Steve oversaw the institutional development of WITA in the 2000s; the rapid growth of WITA’s membership in the 2010s; and its transition to a global platform for trade education in the 2020s.”

“Nasim has been an incredibly valuable member of WITA’s Board of Directors, and her accession to the Chair is a fantastic development that helps power WITA into the future by tapping into the next generation of leadership,” said Steve Lamar, WITA’s former Chair. “I look forward to working with Nasim and the Board as we help Ken and his team continue WITA’s incredible evolution.”

In addition to her roles in the U.S. Congress, Nasim has also worked in the private sector as a law firm partner, in-house with two multinational companies, and a trade association. She started her career at the U.S. Department of Commerce. She holds an LLM in International & Comparative Law from George Washington Law School, a JD from the University of Baltimore School of Law, and a BA in History from the University of Michigan.

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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. 

The post Bill Bewick: The U.S. Tariff Threat Could Break Canada—Or Be a Blessing in Disguise appeared first on WITA.

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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March 10, 2025 | Podcasts

Podcast: Has China Already Won? With Michael Wessel and Stephen Ezell

In this episode of the Trade War Podcast from the Information Technology and Innovation Foundation (ITIF), host Stan McCoy is joined by Michael Wessel, a senior advisor at the Alliance for American Manufacturing, and Stephen Ezell, vice president of global innovation policy at ITIF.

March 3, 2025 | Podcasts

Podcast: The US Battle Plan, With Everett Eissenstat and Kate Kalutkiewicz

In this episode of the Trade War Podcast, host Stan McCoy discusses the first month of President Trump’s second term with two former National Economic Council officials, Everett Eissenstat and Kate Kalutkiewicz.

February 24, 2025 | Podcasts

Podcast: The Winds of War, With Susan C. Schwab and Rob Atkinson

In the inaugural episode of ITIF’s Trade War Podcast, host Stan McCoy discusses recent developments and challenges in global trade policy with Ambassador Susan C. Schwab and Rob Atkinson.

To view this podcast series as it was posted on Youtube, please click here. 

To view this podcast series as it was posted on the Information Technology & Innovation Foundation Trade War search page,  please click here. 

The post The Trade War Podcast With Stan McCoy appeared first on WITA.

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.

The post Trump’s Tariffs – How Should the EU React? appeared first on WITA.

On February 15, C.J. Mahoney joined Security Economics to talk Trump’s recent trade announcements, the potential for trade deals, AI regulation, and how he thinks about policy differently now that he is on the West Coast.

C.J. Mahoney served as Deputy U.S. Trade Representative during President Trump’s first term. He now serves as Deputy General Counsel at Microsoft, but joined the podcast in his personal capacity and is not speaking on behalf of his employer.

To watch the full Podcast as posted by Security Economics, click here.

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