Trump’s tariffs force global trade changes

Under the impact of the tariff policy of the Trump administration in the United States, economies such as the European Union are actively seeking to expand diversified markets and trade partnerships outside the United States.

On July 13, local time, the European Union and Indonesia reached a political consensus in Brussels on promoting a trade agreement. “In a turbulent world, this is the power of partnership,” said European Commission President von der Leyen in a statement. The day before, US President Trump sent a letter to the European Union, announcing that a 30% tariff would be imposed on EU exports to the United States from August 1.

On the 14th, Teresa Ribera, Executive Vice President and Commissioner for Competition of the European Commission, further stated that the European Union will strengthen trade ties with more economies, “We need to explore the depth and breadth of cooperation with other countries in the Pacific region.”

Andreas Baur, deputy director of the Center for International Economic Research of the German ifo Institute for Economic Research, told the First Financial reporter that the US government’s trade policy has led to unprecedented trade policy uncertainty. Against this backdrop, the EU should step up efforts to establish new bilateral trade agreements with other countries, “which requires promoting rules-based trade through new bilateral agreements with Mercosur in South America, India or Indonesia, and plurilateral WTO initiatives.”

The EU accelerates diversified trade layout

According to reports, Indonesia and the EU are negotiating a Comprehensive Economic Partnership Agreement to ensure that Indonesian goods can enter the EU market duty-free.

“We live in turbulent times, where economic uncertainty is intertwined with geopolitical risks, and partners like us must come together more closely,” von der Leyen said at a joint press conference with Indonesian President Prabowo Subianto. She also implicitly referred to the Trump administration’s trade policy: “In difficult times, some countries choose to shrink inward, toward isolation and division.” She sent a signal to countries affected by the US tariff policy: “You are always welcome and can rely on Europe.”

Prabowo affirmed the role of the EU: “Southeast Asia, especially Indonesia, believes that Europe plays a very important role in maintaining global stability.”

Earlier on the same day, the EU announced that it would extend the suspension of trade countermeasures against the United States until August 1 to buy more time for negotiations. These measures were originally retaliatory measures against the Trump administration’s tariffs on EU steel and aluminum, and were originally scheduled to take effect on the 15th. Von der Leyen made it clear that although the EU has postponed its countermeasures, it is still developing a strong response plan.

Bauer believes that “the most important strategic goal of the EU should be to limit trade conflicts to the US market, which accounts for about 15% of global trade, as much as possible, and do its utmost to protect the remaining 85% of global trade.” He also said that the EU should also further strengthen the integration of the internal market, which can “not only compensate for some of the lost US trade share, but also enhance Europe’s resilience in an increasingly turbulent and fragmented global economy.”

In addition to Indonesia, in the face of the impact of US trade policies, the EU is actively strengthening interactions with similarly affected partner countries, including Canada and Japan, to explore possible coordinated responses. Jacob Funk Kirkegaard, a senior researcher at the Bruegel Institute, a European economic research think tank, believes that large economies may consider coordinating their counterattacks against Trump’s latest round of tariffs. He believes that joining forces may give them more bargaining chips.
In the long run, Mujtaba Rahman, general manager of Eurasia Group, a geopolitical analysis company, said that Trump is “using uncertainty” to force trading partners to make concessions, and described his latest tariff policy as “a complete game changer”.

Since the Trump administration promoted the reconstruction of the global trade system, the EU has accelerated the negotiation of new trade agreements and deepened its relations with existing partners. In June, the EU and Canada signed a security and defense partnership agreement and launched negotiations on a digital trade agreement. European Council President Costa said that the two sides agreed to “build closer ties” to bring the strategic partnership “to an unprecedented level”.

On the 14th, Ribera also reiterated the importance of international cooperation. She mentioned that Europe is willing to establish cooperative relations with “other partners and allies in the world who are open and willing to follow the rule of law.”

Reshaping the global trade pattern

In addition to the EU, other major economies in the world are also actively seeking to diversify their trading partners.

Last month, Canadian Prime Minister Mark Carney said that at a time when the rules-based international order is “under threat”, the choice for allies is either to “look back nostalgically and long for the old world order to return in some way, or we can build a new order through goals and partnerships”.

This month, Canadian Foreign Minister Anita Anand said that Canada is accelerating negotiations on free trade agreements with Southeast Asian countries. “We are currently negotiating a free trade agreement with ASEAN, and we look forward to the conclusion of these negotiations.” She said, “We are diversifying and building these trade relationships.”

The United Kingdom, which reached the Economic Prosperity Agreement with the United States in May, is also accelerating the establishment of more trade ties. British Prime Minister Keir Starmer said last month that the United Kingdom will restart trade negotiations with Canada to strengthen global business ties and resist the impact of US tariff policies.

According to a joint statement issued by Canada and the United Kingdom, Starmer and Carney agreed to set up a new working group to “deepen existing trade relations” and asked to submit a report within six months. The group will deal with market access issues and explore ways to cooperate in the fields of critical minerals and artificial intelligence. It is worth noting that as a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Carney said that the legislative process for approving the UK to join the agreement will be completed within this year, which will substantially reduce bilateral trade barriers.

Latin America also shows a trend of integration. At present, intra-regional trade in Latin America accounts for only 14%, far lower than other regions. Brazil and Mexico have launched preparatory negotiations to deepen the trade agreement. Mexican President Sheinbaum revealed that the Brazilian Minister of Trade plans to visit Mexico in August for in-depth consultations. She said that Brazil and Mexico have economic complementarity, “which is not limited to trade agreements, but also includes investment areas.”