The prospect of a second Trump presidency, though somewhat dimmed by the surge of presumptive Democratic presidential nominee Kamala Harris, has U.S. friends in Europe and Asia worried about a repeat of his wrecking-ball trade policies. European and Asian countries have both sticks and carrots to try to deal with any Trump trade wars, but none offers a surefire way to defuse what could be years of increased trade and economic tensions even among allies.
Republican nominee Donald Trump has vowed to levy an across-the-board tax of 10 percent on imports from all countries and a whopping 60 percent surcharge on goods from China, expanding the protectionist arsenal he unveiled during his term in office. Trump and many in his circle—including his running mate, Ohio Sen. J.D. Vance—are also in favor of a weaker dollar as a way to curb U.S. imports and boost U.S. exports, but that, too, could raise tensions with other countries that would see their own currencies under pressure.
So what are U.S. trading partners to do? First, they’ve seen this show before. Many of the tariffs that Trump imposed in office were quietly lifted for certain countries in exchange for trade concessions, such as greater access for U.S. goods or promises to ease currency imbalances. South Korea dodged many of Trump’s first tariffs by offering nominally greater access for U.S. automotive exports and a promise to export less steel, for example.
Tariffs-for-concessions was exactly the approach taken by Trump’s presidential role model, Richard Nixon, with his 1971 economic shock therapy, which also included 10 percent tariffs. Like Trump, Nixon also toyed with threats of less U.S. security assistance to strong-arm U.S. allies into making concessions on trade—and that trade-and-security nexus remains a concern for U.S. friends and partners in both Asia and Europe.
So U.S. trade partners may be justified in viewing the new and expanded tariff threat as mere leverage to extract fresh concessions, such as the purchase of more U.S. goods, that would appease Trump and his supporters. That was ultimately the course that China sought to end the worst of the trade hostilities with the Trump administration, though the much-touted China deal delivered far less than promised. In a triumph of hope over experience, Europe could attempt a similar approach.
“The first setting is the belief that Trump is a deal-maker, so you need to have a deal ready for him, which might be volumes of agricultural sales or some other U.S. product,” said David Henig, a trade expert at the European Centre for International Political Economy. “There is a reasonable likelihood that his actual play is to use the threat of tariffs to get deals that he can claim to be the greatest ever.”
That’s already guiding the thinking in Brussels, where the European Union is hoping an offer to buy more U.S. goods will satisfy Trump, for whom the distorted U.S. trade deficit remains a major, if inexplicable, concern. If that fails, the European Union is ready to reprise the stiff and targeted tariffs that it levied before against certain U.S. exports, including many made in Republican states.
One problem with offering the carrot of buying more stuff is that politics is domestic in the European Union as well. Greater purchases of agricultural products would likely help appease a future Trump administration, but Europe was recently roiled by farmer protests driven in part by anger over greater access for outside farm goods that competed directly with higher-cost European produce; another foreign competitor, especially one with different regulatory and phytosanitary standards, would only aggravate those tensions.
Buying more U.S.-manufactured products might be another option, but those are the very kinds of goods—including cars and machinery—that are suffering the most in Germany’s continued industrial slowdown. Europe has been buying large amounts of U.S. energy, especially liquefied natural gas, to help offset the loss of Russia as its main energy supplier. But to buy even more American gas would require bidding for any extra cargoes against equally energy-hungry economies in Asia, and higher energy costs are exactly what Europe’s manufacturers are desperately trying to avoid right now.
But there is also the possibility that Trump’s new and expanded tariff plan is not about leverage at all. It certainly doesn’t seem to be the case with China, unlike during his term in office, when relatively high tariffs on Chinese exports to the United States were meant to force Beijing to curb its predatory trade practices. (They didn’t.)
Trump now plans to raise import taxes as much as 60 percent on goods from China, which would come on top of existing U.S. tariffs. That is part of an explicit blueprint, outlined by Trump’s former trade czar, to make the huge U.S.-China trade relationship wither away.
“When it comes to China, I think the tariffs are less about negotiating leverage than they are about total decoupling,” said Wendy Cutler, vice president of the Asia Society Policy Institute.
But even the across-the-board import taxes Trump is touting for the rest of the world may not be about leverage at all, but are instead meant to stick around, reduce trade, and raise revenues.
Trump has seriously proposed raising tariffs even higher and using customs duties to entirely replace the U.S. income tax. Vance argues for a mercantilist government policy that will shield U.S. industries from foreign competition, even to the point of raising taxes on Americans to manufacture more cheap toasters domestically. That mirrors the kind of tariff-protected, import-substitution industrialization that many developing countries tried in the early and mid-20th century.
If U.S. tariffs are a feature, not a bug, then Europe may have to return to its targeted trade counter-measures.
“If the offer of a deal doesn’t work, I think we are realistically in the space of tit-for-tat tariffs on the usual products like Harley-Davidson motorcycles, bourbon, and so on. The truth is, though, that there won’t be an easy way to stop Trump from doing as he will when it comes to trade,” Henig said.
Europe does now have a new widget in its economic toolkit: an anti-coercion instrument that could allow EU member states to coordinate a broader gamut of retaliatory measures against outside states that try to strong-arm the bloc economically. But that remains untried, and it was envisioned more as a weapon to be used against smaller outside states, not the world’s largest economy.
If Europe is nervous, many U.S. trading partners in Asia are downright worried, and with fewer arrows in their quivers. Countries such as Japan and South Korea still have large trade surpluses with the United States, while smaller economies such as Vietnam have seen their trade surplus (i.e., a trade deficit for the United States) soar as production and exports have moved from China to third countries. Trump and his trade team repeatedly called out trade imbalances with Vietnam, Malaysia, Thailand, and other smaller Asian economies that don’t have the collective heft of the European Union to fight back in a trade war. Those imbalances have only grown worse in the years since.
“Of U.S. allies and partners, you have to look at, ‘Where do we have the biggest trade deficits?’” to see who is most in the crosshairs, Cutler said. That’s concerning for Vietnam in particular, whose trade mismatch with the United States has grown from about $32 billion just before Trump took office to over $100 billion a year now.
But while Europe, a massive economic bloc sharing the same currency and monetary policy, can fairly easily coordinate meaningful trade reprisals on U.S. goods if needed, smaller Asian economies have less ability or willingness to fight any new Trump tariffs. Instead, Cutler said, most will try to convince the next administration that crude trade balances are not the best metric for measuring bilateral relations, or they will promise to buy more U.S. goods or invest more in the United States.
“Southeast Asian countries are going to be very hesitant to respond in kind and take restrictive measures” against U.S. tariffs, she said.
But countries in Asia face many of the same problems with expanding U.S. imports as those in Europe do. Agricultural imports are politically sensitive. Higher-value manufactured goods compete with domestic production. Trump’s big China trade deal couldn’t even deliver increased sales of U.S. commodities to a state-run centralized economy, making more sales of different products to a slew of different countries even harder to pull off.
Countries in Europe and Asia also have to worry about other Trump policies, especially his transactional view of U.S. security commitments. Trump has questioned the U.S. commitment to NATO and has downplayed U.S. support for Taiwan, Japan, and South Korea due to frictions over trade.
But few countries are in quite as precarious a place as Mexico, with its growing trade surplus with the United States and cross-border migration making it a target in Washington for both trade and immigration hawks. The Economist Intelligence Unit figures Mexico is the country most at risk from a second Trump term.