Trump’s Tariffs: How Do U.S. Tariffs Affect Trade Alliances?

On April 2, 2025, U.S. President Donald Trump announced new tariff policies on what he termed “Liberation Day.” These policies included a base tariff rate of 10% on all goods imported into the United States, leading to an increase in maximum tariffs on imports from certain countries to over 50%.

These new tariffs represent the most significant shift in global trade standards since World War II, raising many questions about the potential implications of Trump’s new tariffs on global trade alliances, particularly regarding the possible restructuring of existing alliances and pushing towards new trade partnerships.

Unprecedented Tariffs:

The tariffs recently announced by Trump have marked a significant shift in Washington’s trade policy, detailed as follows:

Base Tariff Rate of 10%: The recent tariffs imposed by Trump on April 2, 2025, included a set base tariff rate of 10% applied to all imports from any country to the United States. These tariffs took effect starting April 5, 2025. This rate serves as the minimum tariff imposed by the U.S. administration on all countries, granting each country a tariff number applied to the majority of goods. Additionally, separate tariffs of 25% on foreign-made cars, previously imposed by the U.S., came into effect.

Reciprocal Tariffs: Beyond the base tariffs imposed by Trump’s administration, there were also reciprocal tariffs levied against about 57 countries, which entail higher rates than the base tariffs. For instance, a tariff of 34% was applied to imports from China, supplemented by a prior 20% tariff already in place, bringing the total tariff to approximately 54%, with some Chinese goods facing tariffs as high as 79% due to previous tariffs established in Trump’s first term. Additional tariffs include 20% on the European Union, 25% on South Korea, 26% on India, 32% on Taiwan, 46% on Vietnam, 36% on Thailand, 31% on Switzerland, and 32% on Indonesia, all taking effect on April 9, 2025.

The U.S. clarified that the reciprocal tariffs were determined based on several key factors, including the current tariffs of each country and non-tariff trade barriers like licensing restrictions. However, Western reports suggest that the U.S. administration based its reciprocal tariffs on its trade balance with various countries rather than the tariffs those countries impose on American goods. The reciprocal tariffs were designed to correspond to half the costs imposed on U.S. exporters by tariffs and non-tariff barriers, in addition to currency manipulation issues.

A Set of Tariff Exemptions: Trump’s recent decisions included a set of tariff exemptions on certain goods, such as aluminum, steel, cars, and their parts, which are already subject to new tariffs announced earlier in 2025. Exemptions also relate to critical sectors for the U.S., like semiconductors, pharmaceuticals, gold, copper, timber, energy products, and some essential metals. Furthermore, the exemption package covered Canadian and Mexican products listed under the U.S.-Canada-Mexico Agreement (USMCA). Nevertheless, Canada and Mexico will still be subject to a 25% tariff imposed by the Trump administration earlier in 2025. Other countries, including the UK, Australia, and New Zealand, faced only the base tariffs. No tariffs were applied to Russia, Cuba, North Korea, and Belarus, claiming that these nations already face strict sanctions.

Closing the “Minimum” Loophole: Trump’s decisions on April 2, 2025, included an executive order addressing the “minimum” loophole that allowed imports valued under $800 to enter the U.S. tariff-free. Over 90% of incoming parcels to the United States utilize this system, with 60% of these parcels originating from China. Companies like Shein and Temu have exploited this loophole to expand their operations in Washington. The executive decision followed earlier rulings made at the beginning of 2025 regarding “minimum” shipments, with tariffs on these shipments to be implemented starting May 2, 2025.

Varied International Responses:

Trump’s tariffs sparked widespread international criticism; however, responses varied significantly. While some international powers pledged a comprehensive response to these tariffs, others expressed a desire to reach new understandings with the U.S. to mitigate the impact of these tariffs. The divergent international positions can be summarized as follows:

China Imposing Tariffs on U.S. Imports: China has been notably affected by the new tariffs imposed by the U.S., with the total tariffs on Chinese imports exceeding 50% after the U.S. applied a 34% tariff alongside a prior 20%. In response, Beijing has called for the immediate cancellation of these tariffs, warning of repercussions for economic development and global supply chains. Just two days after Trump’s announcement of the new tariffs, China declared on April 4, 2025, that it would impose retaliatory tariffs of 34% on all imports from the United States, effective April 10, in response to the tariffs deemed inconsistent with international trade rules.

Tariffs from Canada, the EU, and South Korea: Similar to China’s stance, many countries announced plans to impose new tariffs on U.S. imports as a countermeasure to the recent American tariffs. Canada, a major destination for U.S. exports, announced it would impose retaliatory tariffs against Washington in response to those applied in March. The European Union indicated it was considering new tariffs, with European Commission President Ursula von der Leyen stating that the first package of countermeasures was being prepared in response to previous U.S. steel tariffs, highlighting that Brussels was looking to implement additional countermeasures to protect its interests if bilateral negotiations failed.

South Korea expressed outrage over Trump’s tariffs, with the acting president, Han Duck-soo, committing to a comprehensive response, viewing these tariffs as catalysts for a global tariff war. The Korean automotive industry is expected to suffer significant impacts, with Hyundai and General Motors Korea anticipated to see a substantial decrease in their exports to the U.S. Seoul exported vehicles worth $34.74 billion to Washington in 2024, representing about 49% of Korea’s total automotive exports.

British Relief: The UK appeared relieved after avoiding the higher tariffs imposed on some other nations, with Washington applying only a 10% tariff on Britain—consistent with the base tariff for all countries. Although reports had predicted an additional 20% tariff imposed on the UK as with other EU countries, the U.S. exempted London from reciprocal tariffs. Some estimates attribute this exemption to the conciliatory approach of UK Prime Minister Keir Starmer towards the Trump administration. However, these tariffs are expected to have implications for economic growth in the UK, possibly forcing the government to implement further spending cuts or tax increases in the near future.

Efforts for New Understandings with Washington: Despite Japanese Prime Minister Shigeru Ishiba’s criticism of the tariffs imposed by Washington on Tokyo—especially given that Japan holds the largest foreign investments in the U.S.—Japan’s Minister of Trade and Industry, Yuji Moto, hinted that the country is still striving to convince the Trump administration to reconsider these tariffs. This effort is particularly urgent due to the potential repercussions on Japanese exports, especially in the automotive and parts sector, which constitutes over 30% of Japan’s exports to the U.S.

Similarly, India is currently exerting significant efforts to negotiate tariff concessions with the United States, mainly due to the adverse impacts on its exports. These include electronic products worth approximately $14 billion, gemstones and jewelry valued at over $9 billion, as well as products from the textiles and information technology sectors. While the current U.S.-India trade deficit stands at about $46 billion, New Delhi is contemplating a reduction in tariffs on $23 billion worth of U.S. imports in an attempt to reach a new trade agreement with Washington.

Taiwan’s government deemed the 32% tariffs imposed by Washington as unreasonable; however, it expressed a willingness to engage in dialogue with the U.S. administration, citing the expected negative impact on Taiwan’s economy, which relies on exports for over 60% of its GDP. Despite achieving a $74 billion trade surplus with Washington in 2024, the new tariffs are projected to contract Taiwan’s GDP by approximately $3.8 billion. A $100 billion investment by a Taiwanese company in the U.S. prompted the Trump administration to exempt the firm from tariffs.

Meanwhile, the Thai government encouraged Thai exporters to seek new markets to reduce dependence on the U.S. market. At the same time, it expressed readiness to negotiate with Washington to reach a trade agreement that establishes a fair trade balance. Similar sentiments were echoed by Malaysia, which voiced hope for negotiations with the U.S. while hinting at an eventual pivot toward other regions to lessen reliance on Washington for trade and investment flows.

Restructuring:

Trump’s tariffs may lead to a restructuring of existing trade alliances, summarized as follows:

Chinese Moves: Amid the disruptions caused by the tariffs imposed by Trump’s administration, China has swiftly sought to leverage these tariffs to forge partnerships with U.S. partners, whom Washington has subjected to new tariffs, in an effort by Beijing to expand its economic and trade influence and take a leading role in a new trade system currently taking shape.

These moves align with China’s traditional approach of exploiting gaps created by Trump’s isolationist policies in international leadership, reflected in Washington’s decisions to cut developmental aid and abandon climate talks, along with the temporary suspension of military assistance to Ukraine, prompting China to propose its alternative vision on these vital issues. In this context, Chinese Vice Premier He Lifeng stated in March 2025 that Beijing and the EU should jointly resist unilateralism and protectionism to safeguard the global trading system.

Chinese President Xi Jinping also called for enhanced cooperation with India shortly after assurances from the Chinese Ambassador to New Delhi that Beijing would purchase more Indian products. Amid escalating criticisms from Washington’s allies due to the new tariffs, Beijing is working to build and repair its relationships with traditional U.S. partners. Some reports indicate that the Chinese president is preparing for an upcoming foreign tour that may include Vietnam, Cambodia, and Malaysia, aiming to strengthen China’s external partnerships.

A New Global Trade Order: Some U.S. reports suggest that China is currently attempting to present itself as the defender of the existing global trade system, potentially boosting Beijing’s leadership role and paving the way for the establishment of a new global trade system led by China. China is actively working to position itself as a reliable partner for various countries, including Washington’s allies, leading a wide-ranging global stance against American protectionism while entering into extensive trade deals—evidenced by the recent call from President Xi for foreign executives to view Beijing as an ideal and promising location.

However, there remain certain challenges facing China’s current maneuvers, including concerns from some of Washington’s partners about the risk of their markets being flooded with cheap Chinese goods. Additionally, the latest tariffs imposed by Washington might push international companies in the opposite direction and prompt a shift in manufacturing away from China.

New Trade Alliances: Some German reports indicate that the recent U.S. tariffs could lead to Washington being excluded from traditional trade balances or becoming a less reliable and appealing partner, pushing towards the formation of new trade alliances. For example, Canada is increasingly viewing the European Union as a more reliable partner than the United States, and it is not out of the question that the EU and Mexico may lean more towards China.

Concurrently, Japan, South Korea, and China are moving towards closer economic and trade relationships, which was reflected in a joint announcement from these countries recently, indicating they are working to enhance cooperative efforts to have a unified voice on economic matters.

Some estimates suggest that the upcoming period may witness shifts in existing trade alliances in Asia, particularly as this region has been among the hardest hit by Trump’s tariffs; hence, a boost in intra-Asian trade may be observed. While European concerns persist over certain practices of state-owned Chinese companies, most estimates suggest that forming a trading system with China is increasingly seen as desirable by the EU, especially if Beijing agrees to transfer technology and invest in production on the European continent in exchange for reduced tariffs.

Fragmentation of Global Trade: Some Western reports suggest that trading blocs oscillating between the U.S. and China may not seek to salvage the old trade system but are instead working to shape a new trade system that relies less on U.S. demand while simultaneously providing more protection against China’s excess production capacity. With the U.S. and China together accounting for only about a quarter of global imports, other coalitions are working to enhance their partnerships and alliances and build a new framework for their international trade.

Two major coalitions reflect this trend: the first is “Open Market Allies,” an increasingly cohesive group committed to free trade, centered around the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), including South Korea, Norway, Switzerland, and the EU, representing more than a third of global import demand.

This coalition had begun to oppose American protectionism since Trump’s first term and is expected to see further cooperation and partnerships among its members in the future. The second coalition, termed “Strategic Hedgers,” encompasses a group of large, fast-growing economies, such as India, Brazil, Indonesia, South Africa, and Turkey, which are heavily reliant on U.S. demand and Chinese capital, yet these countries avoid aligning with either side while adopting a more pragmatic trade strategy that ranges from free trade to protection of vital local industries through support and tariffs.

Countries within this coalition account for approximately 15% of global imports. During Trump’s first term, countries in this coalition, except for India, intensified their trading relationships with China. Both coalitions currently exhibit a faster rate of integration; the EU has updated its agreements with Mexico and Chile, renewed negotiations with Malaysia, the Philippines, and Thailand, and is advancing talks with India to reach a mutual trade agreement.

Additionally, the EU has revived its agreement with Mercosur, a coalition of several South American countries, including Argentina and Brazil. Similarly, Canada has begun strengthening its trade partnerships with the EU and some Asian economies while significant moves have recently been taken by countries in the previous coalitions to bolster bilateral relationships among themselves; thus, it appears that a fragmented trade system is beginning to form that is not led by the U.S. but relies on collective leadership, with alliances forming under the new system according to mutual interests away from global consensus.

However, a decline in U.S. leadership of the global trade system may open avenues for enhancing China’s role in the new system, as evidenced by the current efforts of many countries from the previous coalitions to strengthen trade relations with China, including some U.S. allies like Japan and South Korea, which have initiated trade negotiations with China since late March. The same applies to the EU, which appears open to enhancing trade partnerships with Beijing.

In conclusion, the tariffs announced by Trump in early April 2025 represent a drastic shift in the global trade landscape. The current U.S. administration views the trade deficit as a threat to national security rather than focusing on unfair practices and striving for governance based on trade rules.

U.S. protective policies are expected to lead to a broader reorganization of global trade by emphasizing increased trade flows among various countries apart from the U.S., especially since the latter does not dominate global trade as it does in military spending or international financing, accounting for only about 15% of the overall demand for imports. Thus, even if U.S. imports were to cease entirely, Washington’s trade partners could likely recover their lost exports within just five years according to Western reports.

Trump suspends his latest tariff salvo, but strikes China even harder.

Making a significant turnaround after tumultuous days in the stock markets, U.S. President Donald Trump announced on Wednesday an immediate 90-day pause on the tariff surcharge that had just gone into effect for all countries except China.

While members of his administration had assured for days that he would stick to maintaining the planned punitive tariffs, the American president announced his reversal early in the afternoon on his Truth Social network.

This turnaround immediately caused stock markets to surge, which had fallen earlier in the morning.

Faced with cumulative tariffs ranging from 11% to 50%, around 60 trading partners targeted by the second phase of the two-part tariff salvo announced last Thursday will experience a reprieve, during which negotiations can take place.

During this period, the tariff rate imposed on them will be reduced to 10%, the minimum rate that has been in effect since Saturday for almost all countries.

The notable exception: China, which has been the big loser of the day, will see the tariffs imposed on it in recent weeks increased to 125%.

Donald Trump is thus backtracking one week after launching the largest tariff offensive since taking office, an action that had raised fears of a spike in prices and a global recession.