Seeking shelter from Trump’s fury, US trade partners reach deals with each other

Global Allies Seek Shield from Trump’s Tariff Threats

America’s traditional allies are scrambling to protect themselves from President Donald Trump’s unpredictable trade policies, as they discover that even negotiated deals provide little security against his tariff threats.

U.S. trade partners are increasingly striking agreements among themselves, setting aside long-standing differences to reduce their economic dependence on the United States. The shift comes after a year of Trump wielding tariffs as leverage to extract concessions from allies.

Last summer and fall, the president used threats of import taxes to pressure the European Union, Japan, South Korea and other trading partners into accepting what critics describe as one-sided deals. These agreements typically included promises of significant investments in the United States.

But these nations have learned that appeasing Trump offers no lasting protection. Despite reaching agreements, several countries have faced new tariff threats within months. The president threatened tariffs against eight European countries shortly after finalizing a deal with the EU, though he quickly retreated. More recently, he announced plans for 100% tariffs on Canadian goods after Canada agreed to reduce tariffs on Chinese electric vehicles.

“Our trading partners are discovering that the largely one-sided deals they concluded with the U.S. provide little protection,” said Wendy Cutler, former U.S. trade negotiator and senior vice president at the Asia Society Policy Institute. “As a result, trade diversification efforts by our partners are on turbo charge, looking to reduce dependence on the U.S.”

The most significant example came last week when the European Union and India announced a landmark trade agreement after nearly two decades of negotiations. Similarly, the EU recently finalized a trade deal with Mercosur nations in South America after 25 years of talks, creating a free-trade market of over 700 million people.

“Some of these deals have been in the works for quite some time,” noted Maurice Obstfeld, senior fellow at the Peterson Institute for International Economics and former IMF chief economist. “The pressure from Trump made them more eager to accelerate the process and reach agreement.”

European exporters celebrated the India deal as a lifeline in an increasingly protectionist global environment. Thilo Brodtmann, executive director of VDMA, a European machinery and plant engineering association, called it “much needed oxygen to a world increasingly dominated by trade conflicts,” describing it as “a clear signal in favor of rules-based trade and against the law of the jungle.”

Beyond forming new trade alliances, some European governments and institutions are reducing their reliance on American digital services such as Zoom and Teams. Central banks and global investors are diversifying away from dollars, increasingly turning to gold instead. These shifts could ultimately diminish U.S. influence and lead to higher interest rates and prices for American consumers already struggling with elevated costs of living.

Trump appears undeterred, maintaining that America’s economic dominance gives it the upper hand. “We have all the cards,” he told Fox Business this month. Indeed, some countries heavily dependent on American markets and security guarantees find it difficult to resist his demands.

South Korea demonstrated this dynamic when its Finance Ministry promptly promised to push legislators to approve a previously negotiated $350 billion investment bill after Trump threatened new tariffs on Monday. “The 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,” explained Cha Du Hyeogn, an analyst at South Korea’s Asan Institute for Policy Studies.

Canada faces similar constraints, with 75% of its exports destined for its southern neighbor. “Canada and U.S. will always be tightly linked through international trade,” said Obstfeld. “We’re talking about adjustments more or less on the margin.”

Nevertheless, the global reaction to Trump’s approach is already having economic consequences. The dollar recently fell to its lowest level since 2022 against several competing currencies, reflecting diminished confidence in American economic leadership.

Syracuse University political scientist Daniel McDowell sees a fundamental shift in global perception. “Trump has shown that he is willing to use foreign countries’ economic dependence on the U.S. as leverage against them in negotiations,” said McDowell, author of “Bucking the Buck: U.S. Financial Sanctions and the International Backlash against the Dollar.” “As global perceptions of the U.S. are changing, it is only natural that investors — public and private alike — are reconsidering their relationship with the dollar.”

The White House maintains that America’s global standing remains undiminished. “President Trump remains committed to the strength and power of the U.S. Dollar as the world’s reserve currency,” said White House spokesman Kush Desai.

But for Trump supporters like Paul Winfree, former deputy director of the White House Domestic Policy Council, there are genuine concerns about America’s vulnerabilities. Winfree, now CEO of the Economic Policy Innovation Institute, noted that some of Trump’s advisers believe America hasn’t fully benefited from the dollar’s dominant status, while acknowledging that “many of our adversaries would love to challenge the U.S. dollar and Treasuries.”