How countries respond to Trump's tariffs is what matters next

The tariffs are not a bluff; they are already in effect—and this is just the opening salvo from the White House. The world trading system is facing an unprecedented situation. With President Trump preparing to first impose similar tariffs on Europe, and then lower tariff levels globally, the risk of escalating trade conflicts is extremely high.

However, what's equally important as the US's actions is how the rest of the world will respond. This, in turn, requires judging the president's true intentions. Trump frequently changes the reasons for imposing tariffs, sometimes to force diplomatic changes, sometimes to address trade imbalances, and sometimes to increase revenue. These policy goals cannot all be achieved simultaneously.

For example, learning from the "China deal" of Trump's first term, Western diplomats have been trying to find a list of items they can buy more of from the US to give the White House some "wins." Europe may indicate increased purchases of US liquefied natural gas, weapons, or magnets used in wind farms. Even if these trends already existed, as long as they give the US President a "victory" it would be acceptable.

But is changing the trade deficit really the ultimate goal? Officially, Trump’s justification for this move is a punishment for the trade in synthetic opioid fentanyl, but this is widely seen as a legal pretext for taking "emergency" action, which usually requires congressional approval. Canada has indicated it will take a hard line with Trump, a point clearly articulated by Mark Carney, a candidate to be the country’s next prime minister.

In an interview with the BBC, Carney said, "We will retaliate on a like-for-like basis... dollar for dollar." He scoffed at the fentanyl justification and stated that Canada would "stand up to the bully." This is significant regardless of whether Carney succeeds Justin Trudeau and eventually chairs the G7. As a former Governor of the Bank of England, Carney has witnessed Trump on the world stage at G20 and G7 meetings and has clearly concluded that the US leader only respects strength.

He issued a veiled warning to any country trying to keep quiet and avoid the president's attention: "Good luck with that." In recent conversations with European trade negotiators, they emphasized cooperation and partnership, as well as deals with the US. When questioned on the matter, they even avoided directly criticizing the extraordinary suggestion of imposing tariffs on NATO ally Denmark over the fate of Greenland.

The real question is whether the rest of the world will coordinate retaliatory tariffs against high-profile political supporters of President Trump, such as Elon Musk, which has been common in smaller disputes. Tesla, the electric car maker led by Musk, warned last week that tit-for-tat tariffs would have an impact. All of this is aimed at making competing factions around the White House and interest groups in Congress worry about the global export impact on American factories.

This does not yet consider the impact on domestic US prices. This could also be achieved indirectly through the implementation of planned carbon trading taxes in various jurisdictions. How exactly things develop depends on how powerful people perceive the US still to be. Some countries may conclude that there are other options in the world now. As the threat of tariffs spreads in multiple directions daily, the world is in uncharted territory.