US President Donald Trump’s second inauguration will be historic for a lot of reasons. He will be one of the few presidents who has served two non-consecutive terms, the first to be a convicted felon, and he will be credited with being the first Republican president to win the popular vote in two decades.
But, externally, rarely has the arrival of an American president put so many of the US’s allies on edge. As Trump’s supporters hailed his promises to bring factory jobs back to the economically hard-hit Rust Belt during his campaign, countries around the world lost sleep over how a protectionist US would affect their own economies. Now, after the world has had about twelve weeks to get used to the idea, the day of Trump’s inauguration has finally arrived.
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Trump’s promise to impose up to 25% import tariffs on Canada and Mexico, the US’s two biggest trading partners, caused internal and external divisions and has put into question the future of the United States-Mexico-Canada Agreement (USMCA). One of Canadian Prime Minister (PM) Justin Trudeau’s top aides even resigned over divisions on how to approach the economic threat of a second Trump term. Typical allies Mexico and Canada have engaged in accusations and name-calling as they debated whether their countries should get the same treatment from Trump given their unique situations (Canada has highlighted that less immigration and drug smuggling happens at their border). As tensions rose, the Mexican president said Canada wished it had Mexico’s “cultural riches”.
Now, both countries seem to be trying to put up a united front. Canadian officials have repeatedly said that if tariffs are imposed, there would have to be some sort of retaliation and “nothing [is] off the table.” Last week, Bloomberg reported that Canada already had a list of C$150bn ($105bn) of US-made goods to which they would apply tariffs if Trump follows through on his threats. The person familiar with the matter, who spoke under anonymity, said Canada could apply more tariffs later on contingent on US policy. That said, Trump’s arrival is coming at a time of political crisis in Canada. Trudeau recently resigned after eight years as prime minister after members of his party pressured him to step down.
When Trump applied tariffs to Canadian steel and aluminium during his first term, Canada imposed levies on goods such as whiskey and washing machines. Those tariffs were much less damaging than the package that is being considered now, affecting C$16.6bn of goods at the time. The initial plan would include almost a third of the value of products Canada buys from the US, as in the last 12 months they purchased C$487bn of US goods.
Ontario premier Doug Ford highlighted the need for the country to stay united when forming economic policy in the next four years: “When Donald Trump comes at us, he’s not going to say, ‘Well, let’s not worry about Ontario, they’re good people, or Alberta.’ He’s coming full tilt at Canadians as a whole […] And that’s one thing we have to understand. We need to be united.”
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By GlobalDataMexico’s leadership has also been preparing for Trump’s return. Only a week before his inauguration, Mexican President Claudia Sheinbaum announced a set of tax and financial incentives to encourage nearshoring and a plan to further curb the entry of cheap Chinese imports. The latter was seen as a nod to Trump, given his allegations that illegal Chinese goods enter the US through Mexico. The business-friendly initiatives mark a change of direction for Mexico, whose last president (who was also Sheinbaum’s direct mentor) often clashed with private companies during his tenure.
“Our objective is for people to know that, despite any future uncertainty, Mexico has a plan and is united going forward,” Sheinbaum said as she alluded to the difficulties her country might face under Trump’s second term.
While the EU has also been preparing, the specifics of their plans have been well-guarded. The Guardian reported that the commission’s plans involve a “carrot and stick approach”. On one hand, they are planning retaliatory tariffs if Trump strikes and, on the other, they might offer to buy more US goods. The EU’s trade deficit has become a sore spot for Trump, who feels the US’s usual allies take advantage of their purchasing power. Only a few days after Trump was elected, EU Commission president Ursula von der Leyen said the EU would consider replacing Russian liquified natural gas (LNG) imports with American ones.
“I told the European Union that they must make up their tremendous deficit with the United States by the large-scale purchase of our oil and gas. Otherwise, it is TARIFFS all the way!!!,” Trump wrote on his social media platform Truth Social in December.
Analysts fear that a scenario where Trump singles out a particular country in the EU (he has particularly amicable relationships with Italy’s Georgia Meloni and Hungary’s Viktor Orban), would put a unified approach in question. Agathe Demarais, a senior policy fellow on geoeconomics at the European Council on Foreign Relations, wrote that “there is a high risk of EU fragmentation in response to a potential US-EU trade war, especially if Trump picks different tariff rates for each of the bloc’s 27 member states”.
Associate fellow at Chatham House Sebastien Maillard says that the structure of the EU will make it harder for Trump to single out a specific country.
“Anything that Trump wants to do on the EU, he cannot do it individually […] He cannot single a particular country out even if he wanted to,” Maillard told Investment Monitor last month.
South Korea might consider increasing US food imports preemptively, in case the trade deficit between the countries becomes a point of contention for Trump at one point, Bloomberg reports. Among countries that have the biggest trade surpluses with the US, South Korea ranks eighth. The Asian country gets most of its food imports from the US, from which it receives beef, wheat, corn and fruit. Similarly to von der Leyen, the country is reportedly also considering buying more oil and gas if Trump increases pressure.
As the world watches Trump take his oath for a second time in freezing Washington DC, global leaders will closely await the first executive orders to come out of the White House hoping it will give them, at the very least, some certainty over what direction the next four years will take.
