On 20 January 2025 – the very first day of his term – President Donald Trump announced a sharp increase of tariffs on imports from Mexico and Canada, citing the (alleged) constant influx of both migrants and drugs from both countries and the Mexican and Canadian governments’ failure to staunch that flow. In the next days and weeks, the subject dominated headlines, policymaking discussions, and dinner conversations, frequently culminating at the same question: “what next?”
It soon became clear that this was merely the opening salvo of what has now become a fully-fledged, global trade war. Since then, not a single month has gone by without the threat or announcement by the United States of newly-created or increase of tariffs on goods imported from all corners of the world, for reasons that range from dissatisfaction with taxes on digital services by certain EU countries, to economically punishing Brazil for its prosecution of former President – and Trump ally – Jair Bolsonaro.
“The big change relative to where we were a year ago is that we are in the middle of chaos,” explains Bernard Hoekman, Robert Schuman Centre of Advanced Studies at the European University Institute. “Last year, we had geopolitical tension, the using of trade to achieve non-trade objectives, in particular foreign policy or security objectives. What we are dealing with now is the new Trump administration having, essentially, blown up the international trade order altogether.”
This unilateral action by the Trump administration has pushed many countries into negotiations with the United States. “Today, we have dozens and dozens of governments trying to figure out: what do we do? And what the United States wants from them is not clear,” explains Hoekman. “We try to think about what countries can do to respond individually, and to what extent that response will be bad for the rest of the world, as it implies more discrimination in favour of the United States.”
For some, the answer may lie, instead, on how countries respond collectively. “Is there a scope for cooperation among like-minded countries, without the United States, to help sustain a rules-based trade order while also dealing with specific problems that are faced by all?” questions Hoekman. “Potentially, plurilateral agreements could help with this issue. One thing the EU has indicated it would like to do is try to make agreement with other large, regional trade blocs, to cooperate more closely. Let us say the EU decides to deepen its engagement with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – that is a big chunk of world trade right there, that could continue to operate completely under a rules-based approach and provide firms with more certainty.”
On the EU-level, “the only dynamic area of trade policy that aims to mitigate the ongoing trade and supply chain disruptions, and uphold rules-based trade, are the EU free trade agreements,” agrees Iana Dreyer, editor-at-large at Borderlex. “In addition to agreeing to discuss a partnership with the CPTPP, the EU is on track to ratify its long-sought trade agreement with Mercosur, just finalised free trade agreement negotiations with Indonesia, an Asian giant, and negotiations are ongoing with India.” But she cautions that no European silver bullet has been found against the chaos caused by the American government. “Vis-à-vis the United States, the EU has chosen to be conciliatory and make concessions on trade, even if it puts in question its commitment to multilateral rules. The EU member states and the European Commission are focusing on buttressing their ‘hard’ security via NATO and defence industry investments.”
The EU did, however, secure a trade deal with the US, although it has received some backlash by both policymakers and the European public. When questioned whether we should expect a more forceful approach towards strategic autonomy from an EU-level, Dreyer was incisive. “Brussels’ focus on pairing back sustainability regulations, such as its deforestation act – not least under external pressure; not resorting to new trade legislation, such as the Anti-Coercion Instrument, and parking the implementation of its Digital Services Act in the face of malignant actions of a major US social media platform during recent election campaigns in Europe – these are all actions and omissions that speak for themselves,” she concludes.
It is certainly possible that the Union’s very structure and history hampers its response. “The European Union is not particularly well-equipped to deal with this kind of political and geoeconomic conflict,” reflects Waltraud Schelkle, Robert Schuman Centre for Advanced Studies at the EUI. “It is almost in its genes: when dealing with a series of systemic crises, the EU traditionally focuses on internal polity building. What it would have to do right now is something that is not really in its trajectory, its history, or the very purpose behind its creation. At some point, it would have to harden its borders and defend them; but foreign policy is still a national prerogative, and I do not believe that will change in the future.”
“We are now playing a completely different game,” adds Hoekman. “The United States terms are that, if a country wants to reduce those tariffs, they need to invest or produce in the United States. If you’re Japan, or the European Union, you know you can do that. But what if you are a poor country, or one who relies a lot on exports of labour-intensive products to the United States and the rest of the world?”
That question, of course, applies to several countries in Asia, which explains the large contingent of policymakers from the region to the Forum, as well as the support and sponsorship the event received from the Asian Development Bank. “Asian economies are the most specialised ones in export-oriented development strategies,” Hoekman underlines. “They are also the ones who have been hit the most by what the US is doing now. So, it is important we ask: how does a country like, say, Cambodia, respond, and what are the implications of that response?”
“Cambodia is a small country that is very reliant on the US market, and so our approach has always been cooperative,” reflects Sok Siphana, Senior Minister in charge of Multilateral Trade and Economic Affairs for Cambodia. “We go into trade negotiations trying to find a way for a win-win. And, so far, we are doing well: we managed to secure a 19% tariff for our exports to the US. That is 19% more than before, but that is equalised because our competitors are also subject to a 19% or 20% tariff. In that sense, I would say the reciprocal tariff did not have such a big impact on our economy, and our industry is still alive.”
It is precisely the specificity of each country or region’s circumstances that makes the correct – or collective – response to the trade chaos so elusive. For some countries or regions, this may well be an opportunity. “This creates pressure on countries that want to have a rules-based trade order to decide to deepen cooperation among like-minded countries, rather than in the World Trade Organisation multilateral regime,” adds Hoekman. “But capturing that opportunity requires leadership, to acknowledge it exists and capture it. That is something we have witnessed in the last few months from governments in the East Asian Pacific.”
Other regions, too, are using this moment to reflect on their position in world trade and how to use this period to build on pre-existing strategic goals. “Multilateralism is evolving, and regionalisation is rising in its place – not as a retreat, but as an adaptive response. When the global system falters, regions become the operational level of trade resilience and integration” notes Woubet Kassa, Office of the Chief Economist Office for the Africa region at the World Bank. “For Africa, this shift is critical: the continent faces tighter constraints on scale, and institutional capacity. That is why Africa’s regional integration must do double duty: building internal resilience and anchoring Africa in the global trade system. Deepening region integration in Africa is a foundation for structural transformation, as well as a mechanism to shape, rather than simply absorb, the evolving rules of global trade.”
Whatever solutions countries find – individual or collective, conciliatory or cooperative, multilateral or plurilateral – it seems clear that the current disorder of world trade is a not mere bump on the road. “I do not think there is any doubt that the aftereffects of this will post-date President’s Trump second administration, although the precise form it will take is a very different question,” emphasises Tim Groser, New Zealand’s former Minister of Trade and ambassador to the United States. “That is why we must systematically ask ourselves some questions: why has this happened? What are the systemic issues we need to address to return to a system that will operate on a more systematic and stable basis?”
“This could be a trigger for countries to rethink what they are doing, because the world has changed,” agrees Hoekman. “There are smaller countries like New Zealand, or Singapore, that taking the lead in this moment and thinking about how to connect trade to different issues, such as climate. We can rethink not just about how trade works, but how it can be an instrument to achieve other objectives, such as climate mitigation. And we should actually use that opportunity.”
The World Trade Forum is an annual conference, co-organised with the World Trade Institute at the University of Bern, which brings together leading trade practitioners and scholars, government officials, and representatives of international and non-governmental organisations. Every year, a book related to the World Trade Forum is published with Cambridge University Press. You can find previous editions and further information here.
Bernard Hoekman is the Director of the Global law and economics: trade, investment, and development research area of the Global Governance Programme, one of the flagship programmes of the Robert Schuman Centre for Advanced Studies (RSCAS) at the European University Institute (EUI). Its aim is to build a community of outstanding professors and scholars, produce high level research, engage with the world of practice through policy dialogue, and contribute to fostering present and future generations of policy makers.