Trump’s tariffs run the risk of tit-for-tat moves on a global scale

Experts are warning of the knock-on effects of any such retaliation. Fraser Institute fellow Steven Globerman says: "While Canadians might feel good about tit-for-tat retaliation against Trump's trade bullying and taunting, it might make things worse for the Canadian economy."

That is because costs will be passed on to the consumers. Meanwhile, Canada's crucial energy resources, like gas, are not yet ready to find other markets due to a lack of infrastructure to take them to alternative markets, including Europe.

It is perhaps this realisation that prompted Canada's Prime Minister Justin Trudeau to change tack on his public reaction. The outgoing leader—who has resigned but remains in place until a successor is appointed—drew Trump's attention to the fact that the US runs a trade surplus with Canada on manufacturing and that Canadian consumers buy "more goods made by Americans than China, Japan, and Germany combined."

He added that Canada has all the resources that would help usher in the "golden age" that Trump seeks to bring to the US, suggesting that otherwise, Trump would need to source these inputs from Russia, China, or Venezuela.

With an upcoming election in Canada in a few weeks, Ottawa's response could change, and the future of trade relations across North America remains highly uncertain.

China

There is another major global statesman who is very familiar with Trump's use of tariffs as a political instrument: Chinese leader Xi Jinping. Between 2018 and 2020, during Trump's first term, the world's two biggest economies held a trade war with a range of tit-for-tat tariffs. In January 2019, within six months of the launch of the first round of measures and countermeasures, The Wall Street Journal reported that China's trade surplus with the United States had nonetheless reached a record figure of more than $323bn.

Later that year, Xi signed a deal with French President Emmanuel Macron worth €40bn, signalling to Trump that other markets were always an option for his economy, an export powerhouse. But economic growth in China did show signs of slowing down. And there was also an impact on US firms.

The US Chamber of Commerce issued a statement in August 2019 which pointed to the impact: "The fact of the matter is that nobody wins a trade war, and the continued tit-for-tat escalation between the US and China is putting significant strain on the US economy, raising costs, undermining investment, and roiling markets."

Eventually, the drama ended with the US-China Phase One deal signed by the US President and China's Vice Premier Liu in Washington, D.C., in January 2020. The onset of the COVID-19 pandemic also led to various tariff exemptions between the two countries.

This time around, Xi has various options. The first piece of good news for Beijing is that Trump is now talking about 10% tariffs rather than the 60% he had mentioned before his inauguration. One way for China to soften that blow is to weaken its currency—a tactic Xi has used before.

Read more: Trump's Three Ts—tariffs, tech and Taiwan—set to define US-China relations

China could limit or block the export of critical minerals, which, combined with a similar block from Canada, could cause significant headaches for the US industry. Given the vast range of parts and components in US products that come from China, this could also have further consequences for a whole range of manufacturers and consumers further along the value chain.

Analysis by CNN pointed out that consumers can expect a range of goods to become more expensive as a result. It identified the biggest categories of imports into the US from China: communications equipment—representing 12% of imports and worth $47bn—and computers or related devices, around 10% of imports and worth $39bn. In third place came the "miscellaneous goods" category, which included toys, jewellery, and sporting equipment. The extent of the price rises would depend on the cumulative effect of Trump's tariffs and China's countermeasures.

India

India's trade surplus with the US is currently around $35bn. Its Foreign Minister Subrahmanyam Jaishankar was sitting in the front row during Trump's inauguration. His colleagues back in New Delhi were probably discussing the possible scenarios of the new president's trade policy.

The main stock market index in Mumbai, the BSE Sensex, has been sensitive to tariff threats, falling when they are made. Reuters reported shortly after Trump's inauguration that India would purchase more oil and gas from the US. And when he called for lower global oil prices at his appearance in Davos, India's Prime Minister Narendra Modi will have welcomed the words, with lower energy costs a boon to his own plans for growth in India.

Since Russia's invasion of Ukraine and the subsequent sanctions from the West curtailed Moscow's supply to European energy markets, India has been benefitting from discounted Russian oil supplies. However, India would likely be prepared to buy more energy from the US if it meant avoiding Trump's tariffs. New Delhi is seeking an early meeting between Modi and Trump.

True protectionism or a negotiating tactic?

Trump has already addressed some potentially conciliatory remarks to China, saying he "would rather not use" some measures, implying there are actions that could be taken in Beijing to make him reconsider tariffs. He has also pointed to "massive tariffs" as a tool to force Russia's hand and get them to end the war in Ukraine.

Clear insight into Trump's tactical use of trade measures came during a brief stand-off with Colombia in late January. He issued an executive order for 25% tariffs on all Colombian goods after deportation flights were sent back to the US. Colombia's President Gustavo Petro initially threatened counter-tariffs but later backed down and accepted all of Trump's demands, prompting the White House to cancel the planned tariffs.

Trump is well-known as a self-styled dealmaker. As a returning president, he is no longer unknown on the world stage, but he is still unpredictable, nonetheless. That means it will be difficult to distinguish deal-making rhetoric from clearer shifts in policy.