In February 2025, Donald Trump reconstituted the world economy by introducing “reciprocity” as America’s core principle behind its tariff rates.
Throughout history, tariff rates have been used as carrots or sticks, but Trump’s new criterion was that American tariffs on imports from a country will match the charges the exporting government adds to American exports. Tit for tat.
For instance, the European Union imposed a 10% tariff on auto imports for years, but the US imposed only 2.5%. Trump’s trade blitz corrected this, then sent shockwaves throughout the global economy. In essence, he considers trade as economic war and aims to retain America’s financial and technological dominance. This week, Trump threatened Canada with 100% tariffs after its Prime Minister Mark Carney said in a speech in Davos that middle powers should band together to stop “great powers” from weaponizing their economic might. He didn’t name Trump, but didn’t need to. The other middle powers cheered silently, and the US president exploded.
Frankly, a head of state should understand, diplomatically speaking, that poking the bear on a global platform is always counterproductive. Trump immediately threatened ruinous tariffs on his country’s longest-standing trade partner and neighbor. Carney has since tried to engineer a climbdown, but the damage was done. For other countries, the incident is instructive and provides a glimpse into Trump’s Brave New World. Trump wages the economic war we now find ourselves knee-deep in, and will continue to fight. This is because America’s market is the most prized in the world, because he’s a zealot, and also because not a single middle power that Carney referred to came to his defense or ever will.
The only positive for others is that China is Trump’s prime target. Mark Carney’s “mistake” – to Trump – was not just his slap at the “hegemon,” but also his recent photo op with China’s President Xi Jinping following a trade deal between the two.
The agreement allows up to 49,000 Chinese electric vehicles per year to enter Canada at a reduced tariff, while in return, China eased restrictions on some Canadian agricultural exports. This, to Washington, was a breach in the trade pact (USMCA) and constituted a back-door entry into the open marketplace between the US, Canada, and Mexico. Canadian officials said their American counterparts were apprised by them of this relatively modest deal with China, and did not raise objections. But then Carney delivered his rhetorical broadside, and Trump and his team went ballistic.
The details do not matter, but the contretemps underscores the rules ahead. Decisions cannot be based only on economics, but must also be politically smart. Dealings between nation-states must accede to that ancient proverb – the enemy of my friend is my enemy. In addition, Canada should have considered the optics and the fact that allowing Chinese cars into the North American free trade zone would have been a high-profile coup for Xi, potentially embarrassing Washington.
For Carney, it was also a coup – a photo op with China’s leader – but Trump and others were not impressed. Neither was the leader of Canada’s auto region, Premier Doug Ford of Ontario, who said the deal was destructive to Canada’s auto industry. He added that he wasn’t even consulted and publicly recommended that Canadian consumers boycott Chinese cars.
Put simply, the policy paradigm shift is that all trade is politics, that America dominates the global economy, and its “enemy” is China, among others. American tariffs on electronics, steel, and tech components have throttled Chinese exports and disrupted the global supply chain for months. Leaders must also know that America’s offensive is about technology. Restrictions on Chinese semiconductors, electric vehicles, and green tech are forcing Beijing to decouple faster than planned. The result: Chinese factories are slowing, multinationals are fleeing, and global tech prices are climbing. Yet, for all the chest-thumping, American manufacturers relying on Chinese parts are bleeding too. Apple, Tesla, and countless mid-sized firms are stuck paying higher costs or scrambling to relocate production.
Next in line will be Europe’s industrial heartlands – Germany, France, and Italy. Tariffs on autos and machinery are hitting them where it hurts most. European leaders have been protectionist for decades and gotten away with it. They have tried appeasement, negotiation, and even flattery. None of it works. Trump views Europe as freeloading off US defense and market access, so he’s going to tighten the screws. German carmakers are losing billions as US sales drop, while smaller suppliers face ruin. Germany and Italy are now talking about combining their auto sectors. The EU threatens retaliation but can’t outmuscle Washington. Meanwhile, inflation creeps higher across Europe as energy and import costs rise again, and militarization begins, just when recovery from the last downturn was taking hold.
Canada and Mexico, protected under the USMCA, will become collateral damage if they breach the spirit as well as the letter of their free trade deal with America. Mexico was wrapped across the knuckles last year for allowing Chinese factories to export from inside its border to get USMCA tariff exemptions. Trump’s sudden tariff spikes on steel, aluminum, and agricultural goods blindsided exporters who thought they had certainty. Canadian manufacturers are paying more for American components while watching their own exports priced out of US markets. Mexico, the quiet success story of nearshoring, now faces renewed instability as Trump ties trade to border control, immigration, and eliminating trafficking and drug cartels.
Then there’s the developing world – Vietnam, Bangladesh, and others that boomed as China’s labor costs rose. These nations had hoped to gain from the US-China trade war, but Trump’s expanded tariffs and demands for “fair trade” are now hitting them too. The message is clear: if you run a trade surplus with America, you’re next. Factories in Southeast Asia are watching orders evaporate, currencies wobble, and unemployment rise.
The biggest casualty, though, is the global system itself.
Average US tariff rates rose from 2.5% in January 2025 to 27% by June 2025. The rules-based order that governed trade for decades is collapsing. The WTO is sidelined, alliances are fraying, consumers are gouged, and every country is on edge. The Canary in the Coal Mine is Canada and its Prime Minister Carney, who said Canada had “no intention” of pursuing a full-fledged free trade agreement with China, but courted disaster by making a small one.
Naturally, America’s allies – the middles -- are on edge, and should be. But The Economist summed up the fallout from the dust-up over Canada: “Western leaders navigate a lonely world. China cannot and will not save mid-size American allies from Donald Trump.”
Reprinted from dianefrancis@substack.com – Diane Francis on America and the World.
The views expressed in this opinion article are the author’s and not necessarily those of Kyiv Post.