"With the Trump administration imposing tariffs on a host of foreign-made goods, US trade scenario is becoming challenging day by day. Earlier it was China, and now it’s Canada’s turn to replicate it as the Trump government has imposed steel and aluminum tariffs on the European Union, Canada, and Mexico. Canadian Prime Minister Justin Trudeau deemed the tariffs an affront to the long-standing security partnership between Canada and the United States, while French President Emmanuel Macron was warned that Trump’s action was illegal and creating economic nationalism."

With the Trump administration imposing tariffs on a host of foreign-made goods, US trade scenario is becoming challenging day by day. Earlier it was China, and now it’s Canada’s turn to replicate it as the Trump government has imposed steel and aluminum tariffs on the European Union, Canada, and Mexico. Canadian Prime Minister Justin Trudeau deemed the tariffs an affront to the long-standing security partnership between Canada and the United States, while French President Emmanuel Macron was warned that Trump’s action was illegal and creating economic nationalism.

Shaking up global trade dynamics

Going by the prevailing situation, Trump has stirred the entire trade dynamics in the country and that too in a negative way. Stats reveal, close to $3 trillion foreign goods & services Americans buy every year. The EU, Canada, and Mexico have all retaliated against Trump’s metal tariffs by slapping duties on the US products ranging from cheese to motorcycles. A trade collapse between the two biggest economies – the US and China – in the world would completely disturb the global economy. Add to that, a tiff between close partners Germany, France, and Canada would cause more danger than good to the US economy.

By doing this, Trump administration claims they want to make trade fair and stop the rest of the world from taking advantage of the US and hurting American industry. As a matter of fact, some countries have been less open to foreign investment than the US and at times imposed higher tariffs or other barriers on American imports than the US does on its products. China has been an especially poor trading partner—pilfering US technology, blocking market access for US companies, and heavily subsidising competing industries. Because of this, cheaper imports have forced thousands of US factories to close over the past 20 years.

As far as the North American Free Trade Agreement (NAFTA) renegotiation goes, one of the main sticking points is over a proposal to factor labour cost differentials into trade in automobiles. Adopting it would force Mexico to hike wages in its auto manufacturing sector by as much as five times or suffer extra duties on its car exports—effectively depriving the country of its comparative advantage. The idea is to push factories out of Mexico and into the US. In such a scenario, Trump may now favour negotiating bilateral deals with Canada and Mexico.

Experts say, in all of these, Trump seems to be arm-twisting trading partners for concessions to aid and protect a small number of industries—steel, automobiles, agriculture, and energy. Trump wants to hike tariffs on imported cars in the name of ‘national security’, a transparent attempt to force automakers to manufacture more cars inside the US. Analysts believe that his trade policies aren’t about ‘fair’ trade, rather about solidifying his political base and rewarding his supporters. Jörg Wuttke, a former president of the EU Chamber of Commerce in China, stated that Trump is badgering the Chinese state to intervene to redirect customer-determined flows of trade toward the US and away from other countries—including close allies.

In doing so, the US is becoming isolated from its own partner countries. At a recent meeting of G-7 finance ministers, the other six ganged up on Mnuchin over Trump’s tariffs and demanded collective cooperation on resolving trade issues. It was the US against everyone else, said Japanese Finance Minister Taro Aso. Trump had a chance to team up with allies in Europe and Asia to pressure China to change its trade practices. Without the US support, the entire global order, which has produced so much growth and wealth over the past 70 years, could be quite dramatic, making way for dominant China and a diminished US.