Developments and reactions of countries

On March 4, the world witnessed a new turning point in trade tensions when US President Donald Trump officially imposed a 25% tax on most imported goods from Canada and Mexico after a 30-day delay, while raising taxes on Chinese goods by 10% to 20%.

Responding fiercely, all three countries announced retaliation against the US, pushing the risk of a full-blown trade war closer than ever.

Canadian Prime Minister Justin Trudeau immediately announced a 25% retaliatory tariff on US goods worth CAD 30 billion (equivalent to USD 20.7 billion) from March 4, with plans to expand to CAD 155 billion (USD 107 billion) within 21 days.

The list of affected goods includes beer, wine, coffee, household goods, clothing, shoes, motorbikes, cosmetics... Mr. Trudeau called this an "economic war" initiated by the US, emphasizing the interdependence in the North American supply chain, especially the auto industry. Ontario leader Doug Ford even threatened to cut off power to northern US states.

Prime Minister Justin Trudeau said Canada’s tariffs will remain in effect until the U.S. withdraws these trade actions. If not, the Canadian government will discuss with localities to apply non-tariff measures as well.

As for Mexico, President Claudia Sheinbaum said retaliatory tariffs would be announced this Sunday. According to Bloomberg , Mexico will have “plans B, C, D,” but did not provide details.

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The Donald Trump administration imposes high tariffs on goods from many countries. Photo: CNBC

Beijing also immediately announced retaliatory measures with an additional import tax of 10-15% on some US goods from March 10, including soybeans, beef, pork, seafood, vegetables, wheat, corn, cotton... The Chinese Ministry of Commerce added 15 more US businesses to the export restriction list.

China, Canada and Mexico account for nearly 50% of US trade. The trade war has created an unprecedented spiral of tensions. Mr. Trump’s policies are challenging a global economic order that is already fragile after the pandemic and geopolitical conflicts.

Risk of all-out trade war and economic confrontation

Will Washington's tariffs and retaliatory responses from China, Canada, and Mexico lead to a full-blown, global trade war?

The answer depends on three factors: the level of escalation between the parties, the chain reaction from other economies and the US's ability to control the consequences.

In the short term, the possibility of an escalation of the trade war is very high. Mr. Trump has previously warned that he will raise tariffs if countries retaliate, a familiar tactic of his since his first term.

Canada and Mexico have economies that are heavily dependent on the United States, with exports to the United States accounting for 75% and more than 80% of their total exports, respectively. These two countries are unlikely to make complete concessions, but they also cannot maintain a prolonged conflict because the damage could be so great.

As neighbors, the United States, Canada and Mexico are closely linked economically. As a result, higher tariffs could send inflation soaring, hurting all three countries.

As for China, Beijing could strike a more dangerous blow, such as restricting exports of strategic raw materials, putting the US and its allies in a difficult position. If Mr. Trump retaliates with a 60% tariff as he threatened during the campaign, the cycle of retaliation could spiral out of control.

Investors are worried about the global domino effect. The European Union (EU) is closely watching the US moves. Earlier, in late February, Mr. Trump even said that the EU was established to weaken the US and threatened to impose a 25% tax on all imports from the bloc. During his first term, he imposed a 25% tax on steel imported from Europe and a 10% tax on aluminum. The EU also responded.

And in his second term, if Mr. Trump imposes a 25% tariff on the EU and is retaliated against, the trade war will spread across the Atlantic, then drag countries like Japan, South Korea and India into the vortex of reshaping the global supply chain.

If major countries erect trade barriers en masse, the globalized economic system – already shaken by the Covid-19 pandemic, the conflict in Ukraine, and instability in the Middle East – could collapse.

Observers are now watching the Trump administration’s ability to control the “game.” The White House boss seems to be betting that America’s economic superiority can force its rivals to make concessions.

However, history shows that trade wars often cause economic difficulties for countries as commodity prices rise, putting pressure on consumers and disrupting supply chains.

Mr. Trump himself once admitted that “the American people can endure short-term hardship.” So, does Mr. Trump have enough patience and resources to maintain this game?

In a worst-case scenario, the war could extend beyond tariffs to non-tariff measures such as technology embargoes, investment restrictions, or currency manipulation.

In fact, China has banned the export of a range of rare earth processing technologies. Canada has also threatened to cut off electricity, and Mexico may use agricultural products to pressure US farm states.

If other countries join in, from the EU to the BRICS, the world could split into rival economic blocs, reviving the ghosts of the Great Depression of the 1930s when the Smoot-Hawley Tariff Act helped trigger a global trade war.

It is clear that the risk of a full-blown trade war is real and at an unprecedented level in the past decade. If Mr. Trump and his opponents choose dialogue instead of escalation, the damage can be contained. However, with the current tough stance, the world is standing on a thin line between local economic conflicts and a global trade war with no winners. The next actions of each side will decide everything.

The international financial market was shaken after US President Donald Trump announced that he would still impose a 25% tax on Canada and Mexico and raise the tax rate on Chinese goods to 20% from March 4.