Trump's new trade war: What it means for the world and Ukraine
US President Donald Trump threatens to impose tariffs on partners and China (photo: GettyImages)
US President Donald Trump announced tariffs on imported goods from Canada, Mexico and China. Trump also warned the EU countries about the possibility of introducing similar measures.
Why Trump decided to impose tariffs on goods from these countries - in the RBC-Ukraine article.
Contents
Why Trump is imposing tariffs
On Saturday, February 1, Donald Trump ordered to impose import tariffs of 25% on goods from Canada and Mexico and 10% on Chinese products starting on Tuesday. According to Trump, the reason for this decision was the illegal migration and transit of the drug fentanyl, which he promised to combat during his election campaign.
In response, Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum promised to strengthen their bilateral relations. Both countries announced proportional restrictions on imports from the United States. Canada's Finance Minister Dominic LeBlanc announced a list of US goods to be retaliated against. The list is worth $30 billion, and this is the first stage of Canada's response to US tariffs.
French President Emmanuel Macron and German Chancellor Olaf Scholz have also announced their readiness to retaliate against the United States if Trump does so.
Meanwhile, China, instead of taking countermeasures in response to the actions of the newly elected US president, plans to challenge Trump's new tariffs at the World Trade Organization (WTO). However, an appeal to the WTO does not entail any direct costs or threats to Washington. The WTO dispute settlement system has been shut down since 2019 when Trump blocked the appointment of judges to hear appeals.
“Trump is trying to solve the problem of the trade deficit this way. He also has political demands, as we can see, in particular to Canada and the EU, which he talks about almost every day. Perhaps this is the first step in negotiating some concessions from the US trading partners, whether economic or political. He probably expects that the countries against which he imposes tariffs will come and ask for some discounts in exchange for investments or resolving certain geopolitical issues,” Oleksandr Parashchiy, head of the analytical department at Concorde Capital, told RBC-Ukraine.
According to Paraschiy, the latest US decisions are a global game of Trump, who wants to negotiate with each country, including the EU, separately. When countries unite, they can have better negotiating power, he says.
The expert adds that if the goods of all major US trading partners become more expensive due to increased tariffs, this will directly affect the growth of inflation in America itself. Moreover, according to him, inflation rates may be much higher than when Americans began to worry about this issue after the peak level of consumer prices of more than 9% in June 2022.
Financial analyst Andrii Shevchyshyn is convinced that Trump is not bluffing, but rather wants to balance the trade balance, as he did during his first term.
As a reminder, Trump first announced the introduction of a 25% tariff on steel and a 10% tariff on aluminum for all countries exporting these goods to the United States back in 2018. The US subsequently signed agreements with Canada, Mexico, and the European Union, which received temporary exemptions. However, they remained for countries such as China, Japan, and South Korea.
According to Shevchyshyn, even before Trump's inauguration, most global analysts lowered their forecasts for US GDP, expecting the decline to be partly caused by tough protectionist policies.
“It is difficult to predict how countries will react to the new tariffs. During his previous cadence, Trump scared Europe but did not impose tariffs because Europe made concessions. Now his position is tougher, and he is ready to move forward. Trump recognizes that tariffs will lead to higher prices, but he believes it is justified. The US Federal Reserve has also left the rate unchanged and is waiting for the markets to react,” says Shevchyshyn.
Experts cannot say for sure how long the negotiations between the US and other countries on easing tariff restrictions will last. However, as early as February 3, Donald Trump agreed with Mexico and Canada to postpone the tariffs for 30 days.
How it will affect Ukraine's economy
In the event of a trade war, Ukraine's economy may be hit, as the country is highly dependent on aid from the EU, the US, and Canada, and also actively trades with China. According to the National Institute for Strategic Studies, in 2024, China became Ukraine's second-largest trading partner after the EU. Trade with China amounted to USD 16.8 billion, or almost 15% of total trade.
“We need to monitor the development of relations between the US and the EU, as the European Union is our main trading partner. However, unfortunately, we should not expect any positive outcomes. If the economies of Canada, the UK, and Germany deteriorate, this could lead to a reduction in international aid to Ukraine. We are heavily dependent on financial support, especially from the EU and the G7 countries. If this is compounded by the cessation of US aid, then, unfortunately, the situation will become even more difficult for us,” says Parashchiy.
According to him, certain third countries that do not get involved in this conflict may benefit from the trade war. In his opinion, the risks for Ukraine are currently high, both because of the likely rise in import prices and the reduction of international aid.
Andrii Shevchyshyn believes that all countries will suffer in a trade war but to varying degrees. Over possible customs restrictions, Shevchyshyn believes that the deterioration in the corporate and public sectors will depress the European economy, and this will harm Ukraine. But it will be possible to say for sure only later when Trump and the countries he is negotiating with come to some final decision.
As a reminder, US President Donald Trump has promised to impose 100% tariffs on goods from the BRICS countries, which include Russia, if they refuse to use the US dollar. Read our article to find out why Trump is threatening the BRICS countries with tariffs and whether the dollar is safe.
Sources: comments from Oleksandr Parashchiy, head of research at Concorde Capital, and financial analyst Andrii Shevchyshyn, as well as data from the websites of the National Institute for Strategic Studies, CNN, X, Reuters, Euronews, and BBC.
