U.S. trade partners are cutting deals among themselves \u2014 sometimes discarding old differences to do so \u2014 to diversify their economies away from a protectionist United States.<\/b>
\nBullied and buffeted by President Donald Trump\u2019s tariffs for the past year, America\u2019s longstanding allies are desperately seeking ways to shield themselves from the president\u2019s impulsive wrath.
U.S. trade partners are cutting deals among themselves \u2014- sometimes discarding old differences to do so \u2014 in a push to diversify their economies away from a newly protectionist United States. Some European governments and institutions are reducing their use of U.S. digital services such as Zoom and Teams.
Central banks and global investors are dumping dollars and buying gold. Together, their actions could diminish U.S. influence and mean higher interest rates and prices for Americans already angry about the high cost of living.
Last summer and fall, Trump used the threat of punishing taxes on imports to strong-arm the European Union, Japan, South Korea and other trading partners into accepting lopsided trade deals and promising to make massive investments in the United States.
But a deal with Trump, they\u2019ve discovered, is no deal at all.
The mercurial president repeatedly finds reasons to conjure new tariffs to impose on trading partners that thought they had already made enough concessions to satisfy him.
Just months after reaching his agreement with the EU, Trump threatened new tariffs on eight European countries for opposing his attempts to seize control of Greenland from Denmark \u2013 though he quickly backed down. And last month, he said he\u2019d slap 100% tariffs on Canada for breaking with the United States by agreeing to reduce Canadian tariffs on Chinese electric vehicles.
\u201cOur trading partners are discovering that the largely one-sided deals they concluded with the U.S. provide little protection,\u2019\u2019 said former U.S. trade negotiator Wendy Cutler, senior vice president at the Asia Society Policy Institute. \u201cAs a result, trade diversification efforts by our partners are on turbo charge, looking to reduce dependence on the U.S.\u2019\u2019
Trump supporters such as Paul Winfree, who was deputy director of the White House Domestic Policy Council during Trump\u2019s first term, are wary of the relative decline in U.S. Treasury note holdings by foreign central banks and view the national debt as a vulnerability rivals would like to exploit.
Winfree, CEO of the Economic Policy Innovation Institute, a think tank, said that some of Trump\u2019s advisers do not feel America has fully benefited from the dollar\u2019s status as the world\u2019s dominant currency.
\u201cBut the fact remains that every other country is jealous of our status, and many of our adversaries would love to challenge the U.S. dollar and Treasuries,\u201d he said.
White House spokesman Kush Desai insists America\u2019s standing on the global stage has not been diminished.
\u201cPresident Trump remains committed to the strength and power of the U.S. Dollar as the world\u2019s reserve currency,\u201d he said.India and the EU clinch a long-awaited deal
The most eye-opening deal so far has been the pact announced last week between the 27-country EU and India, the world\u2019s fastest growing major economy. Negotiators had been at it for nearly two decades before they closed the agreement.
Likewise, an EU trade deal announced two weeks ago with the Mercosur nations of South America took a quarter century of negotiation. It will create a free-trade market of more than 700 million people.
\u201cSome of these deals have been in the works for quite some time,\u2019\u2019 said Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics and former chief economist at the International Monetary Fund. \u201cThe pressure from Trump made them more eager to accelerate the process and reach agreement.\u2019\u2019
EU exporters were jubilant over the India deal. VDMA, a group of European machinery and plant engineering companies, welcomed lower Indian tariffs on machinery.
\u201cThe free trade agreement between India and the EU brings much needed oxygen to a world increasingly dominated by trade conflicts,\u201d VDMA\u2019s executive director, Thilo Brodtmann, said in a statement. \u201cWith this agreement, Europe is sending a clear signal in favor of rules-based trade and against the law of the jungle.\u201d\u2018We have all the cards\u2019
On Monday, Trump went on social media to announce his own deal with India. The U.S., he posted, would reduce tariffs on Indian imports after India agreed to stop buying oil from Russia, which has used the sales to fund its four year war in Ukraine.
The president said that India would reduce its tariffs on American products to zero and buy $500 billion worth of American products. Trade lawyer Ryan Majerus, a partner at the King & Spalding and a trade official in the Biden administration and during Trump\u2019s first term, said that businesses and legal analysts were awaiting official White House documents spelling out details of the deal.
Trump is banking on there being limits to other countries\u2019 ability to pull away from the United States. America has the world\u2019s biggest economy and consumer market. \u201cWe have all the cards,\u2019\u2019 Trump told Fox Business this month.
Countries like South Korea, dependent on America\u2019s market and military protection, can\u2019t afford to ignore Trump\u2019s threats. On Monday, for example, the president said he was increasing tariffs on South Korea goods because the country\u2019s legislature has been slow to approve the trade framework announced last year. On Tuesday, the country\u2019s Finance Ministry responded by saying its chief, Koo Yun-cheol, would push lawmakers to quickly approve a bill to invest $350 billion as promised in the agreement.
\u201cThe U.S was trying to identify a counterpart that would find it difficult to refuse U.S. demands outright, given the depth of its economic and security ties,\u201d said Cha Du Hyeogn, an analyst at South Korea\u2019s Asan Institute for Policy Studies.
Or consider Canada, which sends 75% of its exports to its southern neighbor. \u201cCanada and U.S. will always be tightly linked through international trade,\u201d said Obstfeld, a professor at the University of California, Berkeley. \u201cWe\u2019re talking about adjustments more or less on the margin.\u2019\u2019
But the world\u2019s growing rejection of Trump\u2019s policies is already having an impact, driving down the value of the dollar, long the currency of choice for global commerce, to its lowest level since 2022 last week versus several competing currencies.
Syracuse University political scientist Daniel McDowell, author of the book \u201cBucking the Buck: U.S. Financial Sanctions and the International Backlash against the Dollar,\u201d sees a vibe shift under Trump: Foreign countries and investors want to reduce their exposure to the United States, which has moved from a source of security and stability to a driver of instability and unpredictability under Trump.
\u201cTrump has shown that he is willing to use foreign countries\u2019 economic dependence on the U.S. as leverage against them in negotiations,\u201d McDowell said. \u201cAs global perceptions of the US are changing, it is only natural that investors \u2014 public and private alike \u2014 are reconsidering their relationship with the dollar.\u201d<\/p>\n