Despite countermeasures and warnings of a collapse of the global economic order, the United States' trading partners have few good options in the trade war with President Donald Trump other than to sue for peace.
Hit by tariffs of 10% to 50% on their exports to the world's leading economic power, most of these countries have neither the resources to respond effectively nor the political will to engage in a protracted conflict, Reuters reports, adding that as a result, the vast majority of trading partners have not immediately retaliated with countermeasures, but have expressed a willingness to negotiate a compromise that would save face. Even among those who have imposed countermeasures, the door has been left open for continued dialogue.
China announced additional tariffs of 34% on US goods yesterday, striking back at Trump and further escalating a trade war that has stoked fears of a recession and sent global stock markets plummeting with no sign of abating. In a showdown between the world's two largest economies, Beijing also announced restrictions on exports of certain rare earth metals, while Trump retaliated with the same measure, vowing not to back down on his policy.
But from China to Canada, which has responded with moderate measures, most countries are expected to come to the negotiating table sooner or later, given how important American spending is to the global economy. According to the World Bank, American spending is two-thirds larger than that of the European Union.
Apart from negotiations, governments have limited options for protecting their export sector and the broader economy.
These include increasing state aid or introducing a broader economic stimulus package, Spain announced a 14 billion euro aid package on Thursday, as well as seeking alternative, more favorable trading partners. German officials are considering strengthening cooperation with Mexico, Canada and India.
However, for a world already deeply in debt after years of pandemic stimulus, it will be difficult to secure the funds for subsidies and other forms of financial assistance needed to avoid downgrades in growth forecasts, falling profits and layoffs.
Countries that do not have the power like China could sit at the negotiating table more quickly, Reuters points out.
India, hit by a 27% tariff, is already in talks and is not considering countermeasures, a government official said. Before the latest tariffs, India had already made some concessions to Washington and is ready to reduce tariffs on more than half of US imports worth $23 billion in the first phase of the deal, government sources said.
Trump said yesterday that he had a “productive” phone call with Vietnamese leader To Lam, during which Lam offered to reduce tariffs on US imports to Vietnam. “I just had a very productive conversation with To Lam, General Secretary of the Communist Party of Vietnam, who told me that Vietnam is willing to reduce its tariffs to zero if a deal is reached with the US,” Trump wrote on the social network Truth Social. “I thanked him on behalf of our country and said I look forward to meeting him in the near future.”
As European stocks recorded their biggest weekly losses in years, European Trade Commissioner Maroš Šefčovič announced talks with US officials.
"We will not shoot blindly - we want to give the negotiations a chance to succeed and reach a fair agreement, to the mutual benefit," he said on social media.
There are divisions within the European Union over how best to respond to Trump's tariffs. Among the countries that are cautious about countermeasures, not wanting to further escalate the conflict with the US, are Ireland, Italy, Poland and the Scandinavian countries.
French President Emmanuel Macron led the pressure on Thursday, calling on companies to freeze investments in the US.
However, French Finance Minister Eric Lombard later warned against retaliating against US tariffs, saying it could have negative consequences for European consumers.
Fall in world stock markets
On the other hand, global markets reacted violently to Trump's tariffs.
Investment bank JP Morgan said it now sees a 60% probability that the global economy will enter a recession by the end of the year, up from an earlier 40%.
Trump's sweeping tariffs have wiped $2,4 trillion off the value of U.S. stocks, and Wall Street plunged sharply yesterday after China announced countermeasures. Tech stocks fell, particularly hard hit by companies that rely on China and Taiwan for manufacturing their devices.
“This is serious and unlikely to end anytime soon, which is why the market reaction is negative,” said Stefane Ekolo, a market and equity strategist at Tradition in London. “Investors are afraid of a trade war on a ‘blow for blow’ basis.”
US Federal Reserve Chairman Jerome Powell said yesterday that the tariffs were "larger than expected" and increased the risk of both higher inflation and slower economic growth.
In a pre-prepared address, Powell did not directly address the decline in US stocks, but he acknowledged that the same uncertainty affecting investors and company executives is also affecting the Federal Reserve.
After Powell's speech, Trump took to social media to call on the Federal Reserve chairman to cut interest rates, saying now was the "perfect time" to do so.
"Lower interest rates Jerome and stop playing politics," Trump said on Truth Social.
Trump's team played down the market turmoil yesterday, portraying it as an adjustment that will prove beneficial in the long run. The White House pointed to better-than-expected employment data after a Labor Department report showed the U.S. economy added significantly more jobs in March than expected.
"To all those investors coming to the United States and investing huge sums of money, my policies will never change. This is a great time to get rich - more than ever before!!!" Trump said in a post on social media.
After China's announcement, Trump added: "China played it wrong, they're panicking, and that's the one thing they can't afford!"
In Japan, one of the US's biggest trading partners, Prime Minister Shigeru Ishiba said the tariffs had caused a "national crisis", as bank shares fell sharply on the Tokyo Stock Exchange.
US Secretary of State Marco Rubio dismissed claims of an economic collapse, telling reporters that markets are simply reacting to changes and will adapt.
“Their economies are not collapsing. Markets are responding to dramatic changes in the global order when it comes to trade,” he told a news conference in Brussels. “Markets will adjust.”
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