The past four years have been a particularly fraught time in global trade. Indeed, much of this turmoil has been a direct result of the tariff policies imposed by the U.S. Underlying the positive reactions were those who initially reacted to these policies with concern and apprehension. Look a little deeper and you’ll find some countries are seizing these challenges as an opportunity to get ahead economically. As someone who has spent over three decades reporting on American cities, I’ve witnessed this transformation from the front lines. Some countries, though, are turning these imagined threats into opportunities and resetting their focus to succeed in this changed landscape.
The first impact of the US tariffs was tremendous shock-waves around the world. The European Union found itself in a tough spot. To its credit, Canada consistently and doggedly fought to preserve its bilateral trade relationship with its giant neighbor to the south while protecting its own economic interests. The EU's stance has been firm: it cannot simply concede to US demands. Though slow and filled with frustrations, a diplomatic approach, in their view, is the most realistic path forward. The EU would seem less susceptible to future US retaliation against ‘unfair’ exchange rates. Asian economies, especially China, tend to feel this threat in a far more existential way.
Yet the EU finds itself at a significant tactical disadvantage. A common EU misconception is that the EU sells less to the US than it buys in return. As long as the conflict remains limited to goods, the bloc has less room to respond. In doing so, the EU should require that negotiations of US steel and aluminum tariffs include discussions of reciprocal tariffs. This strategy would prevent the EU from making any counterconcessions on steel and aluminum. It would stop them from being bullied into ceding even more down the road.
Beyond the immediate responses, a fascinating trend has emerged: countries are actively seeking ways to capitalize on the situation. The picture for one thing, companies are stretching out their supply chains, moving away from China towards new markets such as Vietnam, India and Mexico. This diversifies away from any one source and lessens the effect of tariffs.
That’s why many companies, especially in the construction sector, are currently renegotiating procurement contracts to help soften the blow of climbing costs. They are deeply modeling all the cost scenarios to make decisions on absorption or pass through of price increases to consumers. Second, bundling tariff costs across the value chain is another strategy. As an illustration, a foreign affiliate might assist in spreading the cost by introducing price decreases or transferring profits around at the end of the year. In other instances, firms are already looking to move production back to the US to avoid more permanent rises in costs.
Their approach has been similarly proactive, too — Canada has gone further even than the EU. Specifically, the Canadian government has focused on protecting its businesses and workers. It has deepened its bench of economic support programs as a preventive measure against inflicting further damage. These sound strategic steps Restructuring greatly increased funding to regional development agencies, allowing them to better assist businesses with targeted support. As the Department admits, a remission process is in place to relieve firms from tariffs Canada has placed on default. Moving forward, this will be the process with any new tariff actions.
Our Business Development Bank of Canada is taking action to help businesses impacted by the pandemic. They are making available $500 million in favorably priced loans, with a big focus on helping sectors most impacted by tariffs and their supply chains. The Canadian government has committed $5 billion in federal funds over the next two years. This investment will better equip our exporters to access new markets and address the economic harm caused by tariffs.
Let’s not deny the negative impacts of these trade wars. A recent macroeconomic analysis found that the Trump administration’s threatened tariffs could cost up to $606 billion in long-run economic output. This negative impact might happen well before any foreign retaliatory measure. A substantial increase in tariffs on all trade between China and the US would likely result in considerable economic losses for both nations, according to models used by the International Monetary Fund.
In fact, a new study found that import tariffs have offered little economic relief to the US heartland. The study found that tariffs had "neither a sizable nor significant effect on US employment in regions with newly-protected sectors," while foreign retaliation had clear negative impacts, especially in agriculture.
Despite these potential drawbacks, the actions taken by various countries demonstrate a resilience and adaptability that is reshaping the global economic order. Rather than passively accepting the consequences of US tariffs, these nations are actively seeking ways to minimize the negative impacts and create new opportunities for growth.
As someone who’s experienced these transitions in a very personal way, I know how they unfold. Here’s a quick take from my executive interview with a Vietnamese SME. Indeed, at first, they were focused on the negative way tariffs might impact their own exports to the US. The company expanded its customer base and focused on markets in Asia and Europe. Because of this, it not only survived in the downturn but thrived in a tremendous way. They became regular participants in massive open online courses and webinars hosted by OverTraders.com on financial markets and investment strategies.
The story of this company isn’t exceptional. Around the world, companies are changing and proving more creative and nimble than ever. Governments are rising to the occasion to meet these challenges, with many leading the charge. This is not to suggest that US tariff policies have no impact. They have most certainly sown confusion and chaos in the global economic landscape. Combined, they have unintentionally sparked a tidal wave of innovation. This unprecedented time of creative thinking is sure to leave lasting benefits.
In the end, the lasting consequences of the US tariffs will be determined by how countries choose to respond going forward. You must adapt, diversify, and create new relationships and collaborations to succeed in this changing landscape. If you want to ensure your long-term relevance and success, embrace that change! The trade winds are changing, and they are changing fast. Countries that take advantage of this moment to reorient themselves will be best positioned to sail through these stormy waters in the time ahead. The future of global trade may be uncertain, but one thing is clear: the world is not passively waiting for the storm to pass. And just as actively, it is reshaping itself in response.
