Trump's tariffs trigger tension: Allies on edge as trade war looms

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As promised, he acted. On Saturday, Trump issued an executive order imposing tariffs on imports from Canada, Mexico, and China starting Tuesday—trade with these three countries accounts for about 40 percent of foreign trade for the United States. Products from Canada and Mexico will be subjected to 25 percent tariffs, imported energy and energy resources from these countries will carry 10 percent tariffs, and products from China will be subjected to 10 percent tariffs by Trump.

What will be the consequences of this move? It all depends on the extent and duration of the implementation of the orders. On Monday, Trump and the President of Mexico, Claudia Sheinbaum, reached an agreement: in exchange for strengthening security controls at the border of both countries, the introduction of tariffs will be postponed by a month. However, tariffs on imports from China and Canada are likely to come into effect starting Tuesday.

Considering that Trump also promises to "definitely" impose tariffs on imports from the European Union and is considering tariffs on imports from the United Kingdom, we might be witnessing the beginning of a global trade war—the tariffed countries will respond with similar measures targeting imports from the U.S.

This war could, in turn, mark the start of the end of the entire economic and political order that developed after the end of the Cold War: based on relatively open borders, progressing global economic integration, and global—or at least Western—leadership of the United States.

For now, Trump's executive order is a big problem for Canada. This country is much more economically dependent on trade with the U.S. than the U.S. is on trade with it.

A whopping 77 percent of Canadian exports are directed at the American market, while only 18 percent of American exports go to Canada. Analysts agree that if the tariffs persist for a long time, Canada's economy is likely to be pushed into recession this year. The same fate awaits Mexico if the tariffs on imports from this country take effect after a month.

All of this makes it difficult for Canada and Mexico to respond to the tariffs imposed by Trump. Especially since the American president promises that if U.S. trading partners respond by imposing their own tariffs on American exports, he will only increase the American ones.

Nevertheless, Canada has imposed 25 percent tariffs on U.S. goods worth $30 billion and promises further actions. In Ontario and British Columbia, provincial governments have ordered government-controlled liquor stores (strong spirits can only be bought there in state-run monopoly stores) to withdraw American drinks.

In the former province—the most populous in Canada—local authorities excluded American firms from government contracts.

The Canadian federal government also promises measures that will harm the economic interests of U.S. states supporting Trump—for instance, in Florida's orange juice imports. However, it's doubtful that these types of restrictions will be politically painful enough for Trump to force him to change course. Scenarios appearing in the public sphere like "Canada joining the European Union to balance the drop in trade with the United States" remain political fantasy for now.

The European Union also has more to lose in a customs war with the U.S. than the U.S. itself. And a war will happen if EU countries cannot convince Trump at the last moment to abandon tariffs, for example, by buying more liquefied natural gas and oil from the U.S.

Countries recording the highest surpluses in trade with the U.S.—especially Germany—are particularly vulnerable. Analyses by the Bundesbank had already indicated that tariffs imposed on German imports could push the German economy into a recession this year. And problems in the EU's largest economy would hit the entire Union, including the highly integrated Polish economy.

At the same time, the U.S. could ultimately lose more than it gains from Trump's trade wars, especially if they reach a global scale. Trump's decision has already resulted in declines on nearly all world stock markets and a fall in the valuation of most assets outside of oil and the dollar—which does not favor American importers.

Analysts agree that tariffs could lead to price increases, including essential goods for Americans, such as tomatoes and other agricultural products mainly imported from Mexico. After all, consumers always bear the cost of tariffs. This could prove particularly politically problematic for Trump, as the current president was indeed elected as someone who would control inflation.

In the longer term, tariffs will likely slow down trade between the U.S. and Mexico and Canada, which could translate to lower economic growth. According to the Financial Times, analysts from investment banks UBS and Morgan Stanley predict that if the tariffs imposed on Saturday persist for a long time, they could halve the real economic growth of the U.S. economy to 1 percent in 2025.

Some analysts fear that tariffs could trigger a supply shock similar to the one experienced during the pandemic. The integration of North American economies first under NAFTA and then the newly negotiated USMCA trade agreement during Trump's first term extended supply chains in many sectors between the three countries.

If Trump's decisions do indeed provoke a global trade war, it could push the entire world economy into recession. Americans would not only have to pay more for various products, but economic collapse would also threaten their savings, investments—including retirement—and jobs.

So what does Trump want to achieve by imposing tariffs on Mexico and Canada? The official explanation that tariffs are meant to force Canada and Mexico to curb the illegal smuggling of people and drugs into the U.S., which occurs across their borders, doesn't quite hold up. While both these problems have indeed reached significant proportions on the border with Mexico, their scale is incomparably smaller on the border with Canada and certainly does not justify imposing the same punitive tariffs on Canada as on Mexico.

It cannot be ruled out that Canada and Mexico have been targeted by Trump to shock other partners—led by the European Union—and force them to make concessions to the U.S. This applies to everything from U.S. allies' defense spending, purchases of American military equipment, energy resources, and trade terms.

But it's also possible that Trump has much more ambitious plans and that tariffs imposed on the U.S.'s closest trading partners are the beginning of a real revolution in the American economic model.

Trump frequently referenced the times of President McKinley (1897-1901) during his campaign, when American industry developed, protected by high tariffs that provided the government with revenues allowing for low taxes.

Trump may genuinely believe that thanks to tariffs, he will finance the tax cuts promised during the campaign, benefiting mainly the wealthiest Americans. The problem is that the American government's expenditures in 2025 are incomparably larger than at the turn of the 19th and 20th centuries, and tariffs may not close the gap caused by tax cuts. Not without cutting expenses, which would strike at the poorer part of the coalition that elected Trump—already the most vulnerable to the consequences of "tariff-induced high prices."

Trump also repeatedly promised the reindustrialization of the United States, the return of well-paid jobs accessible to workers without a college degree in industry to places such as Pennsylvania, Ohio, Michigan, and other areas most affected by economic globalization and the shift of industrial production to East Asia over the last three decades.

The problem is that such a reorientation of the world economy requires careful planning and considerable caution. It's easy to envision a scenario in which the entire global economy loses due to poorly thought-out changes aimed at deglobalization, and the U.S. does not benefit from it at all.

Reindustrialization—as the Biden administration has also discovered while trying to stimulate it through other means—takes time, and before Americans feel its effects, anger over high prices and other economic problems could politically sink Trump's administration.

At the same time, by resorting to such radical measures, Trump undermines the leadership of the United States among Western countries. It is very telling that Canada—one of the closest allies and economic partners of the United States—has been subjected to harsher tariffs than China, treated by the Trump administration as its main global strategic rival.

This is all the more puzzling since Trump himself negotiated a trade pact with Canada and Mexico during his first term, whose provisions he is now discarding.

Trump's decision has already sparked a visible wave of anti-American sentiment in Canada. Combined with what Trump says about Canada as the "51st state of the United States," the decision to impose tariffs makes Canadians increasingly view their southern partner not as a good neighbor but as a source of threat to their country. Increasingly serious questions arise about whether Trump really wants to force Canada to join the United States.

Everything Trump has done since taking office again undermines confidence in the U.S. as a rational hegemon serving the interests of the entire community of Western or democratic states. Transatlantic relations are becoming as tense as never before, and it's even hard to estimate how destructive an eventual customs war between the U.S. and the European Union would be for them.

This is great news for countries like China, which have long been trying to divide Western countries and deepen the chasm between the U.S. and the EU. Amid Trump's chaotic, aggressive, and ally-disregarding policies, China may appear as an attractive alternative, standing guard over global integration that serves many economies.

It's hard to say today how Trump's trade wars will ultimately end. It's possible that the American president will quickly gain concessions from partners, and the "customs gun" will remain loaded on the table till the end of his term but will not be fired—the agreement with Mexico extends hope for such a scenario. But we must be prepared for the possibility that Saturday's decision triggers a sequence of events capable of radically shaking the world economy and politics.

Jakub Majmurek