POLICY BRIEF
MARCH 2025
GLOBAL IMPLICATIONS OF
THE TARIFF WAR: A FOCUS
ON THE NEW SOUTH
HUNG TRAN
PB -17/25
When President Donald Trump gave his State of the Union
address to a joint session of the United States Congress
on March 4, 2025, many of his announced tariffs went into
effect. These included a 25% levy on most goods imports
from Canada (10% on oil and gas) and Mexico (though
Trump subsequently exempted Canadian and Mexican
imports that satisfy USMCA rules of origin requirements);
and 20% (doubling the 10% implemented in February) on
all imports from China. A 25% tariff has been imposed on all
imported steel and aluminum; this could be raised to 50%
on Canada’s metals as President Trump has threatened. He
also planned a 200% tariff on champagne and European
Union spirits in response to the EU reinstating an import
tax on American whiskey. Another wave of tariffs is set to
be applied in early April, including sector-specific tariffs
(especially on automobiles) and reciprocal levies (on
countries with national sales taxes or value added taxes—
implemented in Europe and many other countries). Trump
has repeatedly threatened to impose 100% tariffs on
BRICS countries that seek to reduce the dollar’s dominant
role in global finance.
Based on the implemented tariffs, the average rate of U.S.
tariffs on total imports could rise significantly from 2.4% at
the end of 2023 to 10.5%—and probably higher if more
tariffs are announced. The U.S. tariffs and counter tariffs
by other countries have prompted serious concerns about
a , undermining the prospects for growth and inflation not
only in the affected countries but for the global economy
as a whole. U.S. and international equity markets have
posted heavy losses, driven by fears of a recession as the
trade war takes shape.
HUNG TRAN
HOW HAVE OTHER COUNTRIES RESPONDED TO
U.S. TARIFFS?
The reactions of the rest of the world have differed between the major trading countries
and blocs able to push back, and most others not in a position to do so. The major trading
partners directly impacted by U.S. tariffs have been active in taking measures to protect the
competitive positions of their companies and products in international trade, and to help
sustain their economic growth. These measures fall into three different but inter-related
categories.
Tariffs and Counter-Tariffs
First, these countries and trading blocs have responded promptly to U.S. tariffs by
implementing tariff and non-tariff retaliatory measures, while expressing their willingness
to negotiate with the U.S.
Canada’s federal government announced a 25% tariff on a specific list of goods imports
from the U.S. worth C$30 billion ($20.9 billion), effective immediately, to be increased to
C$155 billion ($107.9 billion) or more if U.S. tariffs are maintained. Separately, the Ontario
government has imposed a 25% export tax on the sale of electricity to three U.S. states—
Minnesota, Michigan, and New York—and additional measures in response to any U.S.
escalation. Other provincial retaliations are likely to be announced in the period ahead.
Mexico’s President scheduled a major rally in Mexico City on March 9 to announce retaliatory
measures against Trump’s tariffs, but instead turned it into a celebratory gathering after
Trump decided to suspend tariffs on Mexico’s goods that satisfy USMCA (United States-
Mexico-Canada Agreement) rules of origin requirements—even though Mexico’s steel
exports of 3.2 million metric tons to the U.S. are still subject to the March 12 tariffs. President
Claudia Sheinbaum believed that her approach of being firm while engaging with Trump to
discuss solutions to his grievances (flows of immigrants and fentanyl to the U.S.) is the right
tactic under the circumstances.
The EU has announced counter-tariffs on $28 billion of imports of industrial and agricultural
goods from the U.S., effective April 1, 2025. The EU is concerned about the fact that it no
longer enjoys Biden’s tariff-free quota on steel and aluminum shipments to the U.S., as well
as the planned reciprocal tariffs. But it has confirmed its readiness to “protect is businesses,
workers and consumers”.
China has been prompt in taking counter measures in a variety of sectors. It has imposed
a 15% tariff on some American agricultural imports including chicken, corn, cotton, and
wheat; a 19% levy on U.S. aquatic products, beef, pork, dairy, soybeans, etc; 15% and 10%
import taxes on American coal and liquified natural gas (LNG); and a 10% tariff on U.S.
agricultural machinery, pick-up trucks, and some large cars. In addition, it has put 15 U.S.
corporations on its export-control list and ten others on its unreliable-entities list. It has also
imposed export controls on 25 rare-earth minerals.
The tariff war has worsened the prospects for growth and inflation, not only for the U.S. and
affected countries, but for the global economy. Of particular concern is the Atlanta Fed
GDPNow model’s estimate of a -2.5% slump in the first quarter of 2025, sharply down from
more than +2% in late February first the US economy . For 2025 as a whole, U.S. growth
Policy Brief - N° 17/25 - March 2025 3
estimates have been slashed to 1.5%-1.7% by American bank analysts, from around 2%
expected earlier this year. Overall, the World Bank has estimated that global economic
growth will slow to 2.7% this year, below the more than 3% annual average in the decade
before COVID-19. More ominously, the International Chamber of Commerce has warned
that the tariff war “risks sinking the world in new depression”.
It is an open question whether weakened economic growth, especially in the U.S., will at
some point lead to modifications to the U.S. tariff policy.
Building New Trade Ties
Second, other countries have been active in building up trade ties with each other to sustain
their export industries and de-risk from too much reliance on the American economy.
The EU has been in the process of ratifying free-trade agreements it has signed with the
Mercosur countries (Brazil, Argentina, Paraguay and Uruguay), and with Mexico. It and
Canada have taken steps to increase bilateral trade in the context of the Canada-EU
Comprehensive Economic and Trade Agreement (CETA). The EU has tried to do the same
with Vietnam in the context of the Vietnam-EU Free Trade Agreement. The EU has also
agreed a digital trade pact with South Korea, is close to finalizing a free-trade agreement with
India, and its Strategic Partners Agreement with Japan entered into force at the beginning
of 2025.
In addition, the EU is likely to seek to strengthen its economic relationship with Africa,
being the latter’s largest export market. In addition to its Global Gateway investment
package worth €150 billion ($163.8 billion), the EU will reinforce tiers with 15 sub-Saharan
African countries through Economic Partnership Agreements; four North African countries
through Association Agreements; and 35 African countries through its General System of
Preferences. Moreover, —the first since 2018—reaffirmed diplomatic and economic ties in
the face of U.S. pressure on both. Pointedly, the EU expressed full support for South Africa’s
Presidency of the G20 in 2025, after senior U.S. officials boycotted the first few ministerial
meetings of this year’s cycle of G20 meetings.
The United Kingdom has joined the Comprehensive and Progressive Agreement for Trans
Pacific Partnership (CPTPP) and enjoys free trade with nine members, except Canada and
Mexico, which have not yet ratified the UK’s ascension to the Partnership. The UK has also
secured trade deals with Australia, New Zealand, and started talks with India, among others.
Canada and Indonesia are scheduled to sign a Comprehensive Economic Partnership
Agreement, concluded late last year.
More importantly, China has reached out to other countries, promising substantial trade and
investment opportunities in order to diversify its trade with the U.S. It has already traded
more with Global South countries than with the developed economies. In particular, ASEAN
has become the top export market for China, ahead of the U.S. and EU. Of special interest is
the fact that Malaysia, as Chairman of ASEAN in 2025, will organize the first China-ASEAN-
Gulf Cooperation Council Summit later this year to promote economic cooperation among
the three regions.
China has also stepped up its charm offensive directed at European countries. Criticizing the
U.S. for treating its Western allies “brutally and domineeringly”, China has highlighted that
its “diplomacy is focused on peace, goodwill and win-win cooperation”, especially ahead
Policy Brief - N° 17/25 - March 2025 4
of the 50th anniversary of the relationship between Brussels and Beijing. China’s approach
appears to be receiving a sympathetic hearing from some EU officials who have been
frustrated by the U.S. anti-EU posture. In particular, China has reiterated that “it has been
doing its best to push for negotiations with the EU” on the latter’s tariffs on Chinese electric
vehicles, trying to leverage the opposition to the tariffs in Germany, Hungary, Slovakia, and
Slovenia.
China has pledged to increase trade and investment with Africa. At the Forum on China-
Africa Cooperation (FOCAC) Summit in September 2024 in Beijing, China pledged $51
billion to Africa for the next three years. This pledge represents a recovery from the low of
$40 billion pledged in 2021 but still shy of the high of $60 billion in 2015 and 2018. More
interesting is China’s pledge of $10 billion of investment in sectors prioritized by African
leaders—including
pharmaceuticals, agricultural, industry, and mineral processing—areas in which Western
corporations are still reluctant to invest in substantially. And while the U.S. has cut foreign
aid, China has made progress in building alliances in space activities with Africa, forging
nearly two dozen pacts with African nations and responding to the expectations of African
leaders on high-tech cooperation.
From an insignificant player two decades ago, China has become a dominant force in Latin
America alongside the U.S. and EU. The EU highlighted the expectation that by 2035,
China may overtake the U.S. to become Latin America’s top economic partner. A notable
development is the inauguration of the Chancay megaport in Peru, a project financed
by China as parts of its Belt and Road Initiative (BRI), which took place during the APEC
Summit in that country in November 2024. When fully operational, the megaport could be
transformative of Latin America’s trade logistics by cutting shipping time to China by half
(up to 20 days), bypassing the Panama Canal and the Atlantic Ocean.
It is important to recognize that while the trade-diversion measures described above
would generate some trade activities among countries engaging in forging new ties, the
tariff war would depress overall world trade, increasing inefficiency and raising the costs
of international commerce. This is likely to reduce growth in world trade in 2025 from the
3.2% expected previously. The international bank ING has estimated that world trade will
grow by 2.5% this year, barely keeping up with expected world growth, instead of doubling
and leading global economic growth rates like before.
Implement Supportive Fiscal, Monetary and Structural
Policies
Third, many countries have aligned their fiscal, monetary, and structural policies to support
domestic demand in anticipation of turbulence on the foreign trade front. At China’s two
sessions of its national legislative and consultative bodies, which took place in early March
2025, the government pledged to increase its planned budget deficit from 3.5% of GDP to
4%, together with an appropriate monetary policy stance to stabilize the property market
and stimulate domestic demand. In addition, China has announced a comprehensive
30-point strategy to boost consumer spending, tackling many underlying impediments.
The European Central Bank, meanwhile, has cut policy rates for the sixth time to 2.5%
while the European Commission has proposed raising €150 billion ($163.8 billion) against
the security of the EU budget to fund joint defense projects. In particular, Germany’s major
parties have reached a deal allowing the incoming CDU/CSU-SPD coalition government
to spend hundreds of billions euros on defense and infrastructure, including the green
Policy Brief - N° 17/25 - March 2025 5
transition—supporting growth. hoping to increase production and jobs, including by raising
the minimum wage and public investment in infrastructure. Canada has promoted structural
reforms to increase productivity and economic union, including by removing rules that
restrict inter-provincial trade. The Bank of Canada is expected to cut policy interest rates
further towards 2.25% from 2.75% at present.
It is important to note that, if successfully implemented, the structural reforms announced
by some countries as mentioned above would help improve their economic performance
in the future.
Impacts on Global South Countries
Most countries in the Global South (GS) are ‘price takers’ or recipients of the negative
fallout from the tariff war. First and foremost among this fallout is slower growth in world
trade and economic activities, accompanied by higher inflation. Furthermore, U.S. tariffs
tend to keep the dollar strong. This environment is bad for emerging-market and developing
countries, many of which can suffer from declining capital flows, causing dollar shortages in
their economies. Many emerging-market countries have eased monetary policies as their
growth prospects have worsened.
In addition, the U.S. has taken a much more ideological approach to foreign relations,
linking other countries’ access to U.S. markets, especially its General System of Preferences,
as well as foreign aid, to whether their actions have been viewed as being contrary to
U.S. interests. One example of this approach is the way the U.S. has cut aid to South
Africa in reaction to its land reform law, viewed by the U.S. as discriminating against white
Afrikaners. In short, U.S. trade actions and official statements have raised doubts about the
reliability of unfettered access by other countries to U.S. markets. Furthermore, China’s
over-capacity in a wide range of products flooding world markets poses serious problems
to the industrialization efforts of many developing countries, in addition to causing trade
frictions with developed countries.
Two groups of GS countries will face different sets of challenges arising from recent global
developments.
Twin Challenges: Uncertain Access to U.S. Markets and
China’s Overcapacity
Larger GS countries, those considered to be among the middle powers, including India,
Brazil, Turkey, and Vietnam, face twin challenges from the U.S. and China. Many GS countries
have developed export industries, including to the U.S. That exposes them to U.S. tariffs
and other restrictive measures, especially against those running large trade surpluses with
the U.S. By and large, their responses to U.S. tariffs, in particular on steel and aluminum,
have been reconciliatory—not imposing counter tariffs, but seeking to negotiate in an
effort to address U.S. complaints. This approach reflects their assessment that they are not
in a position to engage in a tit-for-tat tariff war with the U.S.
For example, Brazil is the second largest steel exporter to the U.S. (at four million metric
tons in 2024 after Canada at six million) and has decided not to retaliate, but has tried
negotiations. This is against the backdrop that Brazil hopes to benefit from the tariff war,
putting itself forward as a steady and reliable supplier of agricultural products, especially
soy. Under the first Trump Presidency, China diverted large orders of soybean from the U.S.
Policy Brief - N° 17/25 - March 2025 6
to Brazil, raising its share of Brazilian exports while reducing its share of U.S. exports.
India exported 319,000 metric tons of steel to the US in 2024, runs an annual trade surplus
of around $35 billion against the U.S., and imposes a weighted tariff rate on U.S. goods
of 9.5%, more than three times the U.S. tariff rate on Indian goods—putting it in Trump’s
sights. Instead of counter tariffs, India has moved quickly to cut tariffs preemptively on
high-end motorcycles, cars, and smartphones parts—helping companies such as Harley-
Davidson (a traditional favorite of Trump), Tesla (a more recent favorite), and Apple—and
hoping to earn some goodwill from the Trump administration. India has also promised
to purchase more American goods. In addition, India has been cooperative in accepting
planeloads of illegal Indian immigrants in the U.S., avoiding the pressure the U.S. put on
Colombia, which initially refused to accept returnees but had to back down after the U.S.
announced tariffs on its goods.
Turkey has had a modest and fairly balanced trade relationship with the U.S., totaling $32
billion in 2024 with a small U.S. trade deficit of $1.3 billion. While Turkey exports 418,000
metric tons of steel to the U.S., it has not reacted to the new U.S. tariffs on steel imports, in
contrast to the counter tariffs it imposed on the U.S. in response to similar tariffs on its iron
and steel shipments under the first Trump Presidency.
Vietnam ranks eighth among the U.S.’s top trading partners, and has the third-largest trade
surplus with the U.S.—reaching $123 billion in 2024. As such it has been vulnerable to
U.S. tariffs to rectify the trade imbalance. Vietnam also ranks sixth in terms of steel exports
to the U.S.—at 1.2 million metric tons in 2024. Without taking any actions on the U.S.
steel tariff, the Vietnamese government has instead sent a trade mission to Washington
to negotiate deals to buy a wide range of products, including liquified natural gas (LNG),
aircraft, armaments, power-plant equipment, and medicines, in a bid to placate the Trump
administration and avoid tariffs. U.S. Trade Representative Jamieson Greer has reportedly
asked Vietnam to “have stronger solutions to open up its markets and improve the trade
balance between the two countries”. Vietnam has tried to attract foreign direct investment
from U.S. firms. Most recently, it has planned rules that would allow Elon Musk’s Starlink to
provide internet services in the country.
At this juncture, it remains to be seen if these ‘appeasement’ strategies work in shielding
those countries from U.S. tariffs.
Exporters to the U.S. have also experienced the competitive pressure from Chinese
manufactured goods in both their home and export markets. China has increased
substantially both the volume of its exports to, and trade surpluses with, ASEAN, South
Asia, Latin America, and Africa in recent years. Several large GS countries, including
Vietnam, Indonesia, Malaysia, Thailand, Mexico, Turkey, Brazil, and South Africa, have
reacted by putting tariffs on some Chinese products, including steel and electric vehicles,
and restricting the flow of online imports to protect their small domestic retailers. But they
have left the door open to attract greenfield direct investment from China, again in electric
vehicles, batteries, solar, and wind power products. Generally speaking, China increasingly
poses a challenge to the development strategy of the large GS countries, as the well-
proven manufacturing-for-export route has been made more difficult for them to follow.
One of the responses to the twin challenges from the U.S. and China has been for
many countries to deepen regional cooperation to sustain growth in the face of adverse
international environment. Of particular interest is Africa launching its Pan-Africa Payment
and Settlement System (PAPSS), backed by 15 central banks and 500 commercial banks
Policy Brief - N° 17/25 - March 2025 7
in the region, to provide direct exchange of local currencies without the need for a vehicle
currency such as the dollar. This would help spur trade among regional economies,
especially in the context of the rolling out of the African Continental Free Trade Agreement
(AfCFTA).
Similarly, ASEAN has made steady progress in promoting regional economic integration
through its digital payment system, facilitating payment and settlement of cross-border
transactions in local currencies.
Coping With Cuts to Foreign Aid
Low-income countries in particular will suffer from the cuts in official foreign aid by the
U.S. and some European countries, such as the UK and the Netherlands, which are now
prioritizing defense spending over aid. For example, 83% of the programs of the U.S.
Agency for International Development (USAID) have been eliminated, while the U.S. foreign
aid budget has been frozen, subject to review. Since the U.S. has accounted for 25%-
30% of total annual official development assistance (ODA), substantial cuts by the U.S. will
have a significant impact on aid flows to developing countries. Furthermore, other Western
countries are under pressure to increase defense spending, forcing many to cut back on
foreign aid. For example, the UK government has reduced its foreign aid budget from
0.5% of its gross national income to 0.3%. This ratio is similar to the overall ODA/GNI ratio
of developed countries, already well below to the United Nations target of 0.7%. Some
other countries, especially China for geopolitical reasons, would likely step in, probably
selectively, to make up some of the cuts, but it is unlikely that this would fully compensate
for the reduction in ODA and other financial contributions by the U.S. and key Western
nations to developing countries.
TheU.S. has also exited the Loss and Damage Fund (providing financial assistance to
developing countries most vulnerable to climate change impacts) raising concerns about
possible U.S. withdrawals from other vertical funds, including the Global Fund to combat
HIV, tuberculosis and malaria (the U.S. pledged to contribute 38% of the Global Fund’s
replenishment of $18 billion in 2025), Gavi the Vaccine Alliance (The U.S. pledged $1.5
billion of the $9 billion replenishment in last five years), the Pandemic Fund hosted by the
World Bank (the U.S. contributed $700 million to the $2 billion fund), the Green Climate
Fund (the U.S. contributed $3 billion to the $13.5 billion fund), and the Clean Technology
Fund (the U.S. contributed $150 million out of $5.4 billion).
Specifically, international assistance for the energy transition has been curtailed, causing
disruptions in these efforts in recipient countries. For example the U.S. has withdrawn from
the Just Energy Transition Partnership (JETP) program that helps South Africa, Indonesia,
Vietnam, and Senegal. The EU has pledged to step up to sustain the program, but there is
a limit to what it can do given its own budget constraints.
Moreover, there are concerns about possible cuts to U.S. support for the multilateral
development banks, especially their concessional lending windows and climate change
activities—to the point of the U.S. considering withdrawal from some of them.
The reduction in international aid—already insufficient relative to the needs—would greatly
hamper efforts by low-income countries to develop economically, provide adequate
healthcare to their peoples, and deal with the effects of climate change—probably reversing
the meagre progress some have made in the past decades. The most damaging cuts to
Policy Brief - N° 17/25 - March 2025 8
foreign aid have been in the field of healthcare, especially for HIV/AIDS viral programs. This
would put at risk of health crises.
Some observers have considered the aid reduction as an opportunity for recipient countries
to reduce their aid dependency and to try to mobilize domestic resources for development.
Out of necessity, many countries may have to do so—but this is a long-term endeavor with
uncertain prospects for success, which would not help cushion the damage to low-income
countries in the foreseeable future.
CONCLUSIONS
The unfolding tariff war is likely to be just the start of the unraveling of the post-Second
World War world order, in particular the rules-based open trading system underpinned by
the World Trade Organization. Since no alternative order has emerged, despite talks about
multipolarity replacing unipolarity, there does not seem to be any accepted and respected
rules of the game setting out how sovereign nations should deal with each other. As the
world slides towards global disorder, countries have no choice but to seek to strengthen
national unity and independence, as well as their economic resilience. By necessity, they
have to work together with like-minded countries to enhance their positions in dealing
with the superpowers—in particular the U.S. Those which fail these challenges will have to
accept their fate as explained by Athens’s envoy to the Melians, according to Thucydides’
History of the Peloponnesean War: “The strong do what they can, the weak endure what
they must”.
Policy Brief - N° 17/25 - March 2025 9
ABOUT
THE AUTHOR
HUNG TRAN
Hung Tran is a Senior Fellow at the Policy Center for the New South and a
Nonresident Senior Fellow at the Atlantic Council’s Geoeconomics Center.
His research interests include geopolitics and geoeconomics, in particular
the US-China strategic rivalry and how the Global South can navigate that
conflict. From 2007 to 2019, he was with the Institute of International
Finance, rising to be its Executive Managing Director. In 2011-12, he
helped coordinate the international private Greek government bond
holders in negotiating with Greece, the Eurogroup, the European Central
Bank and the International Monetary Fund for a €206 billion Greek
sovereign debt restructuring, the largest debt restructuring in history.
In 2001-07, he served as the Deputy Director of the Monetary and Capital
Markets Department, International Monetary Fund. Among other duties,
he chaired the Editorial Committee of the Global Financial Stability Report,
one of the IMF’s flagship publications. In the previous two decades, he
worked as senior economist, chief economist and global head of research
of Rabobank International, Deutsche Bank, Merrill Lynch and Salomon
Brothers; having been posted in New York, Frankfurt, Singapore and
London. Before that, he briefly taught Economics at New York Institute
of Technology. Hung Tran has authored and published numerous articles
and books on economics and financial markets, and has been interviewed
and quoted extensively in the international media.
ABOUT
THE POLICY CENTER FOR THE NEW SOUTH
The Policy Center for the New South (PCNS) is a Moroccan think tank aiming to contribute to the
improvement of economic and social public policies that challenge Morocco and the rest of Africa as
integral parts of the global South.
The PCNS pleads for an open, accountable and enterprising "new South" that defines its own narratives
and mental maps around the Mediterranean and South Atlantic basins, as part of a forward-looking
relationship with the rest of the world. Through its analytical endeavours, the think tank aims to support
the development of public policies in Africa and to give the floor to experts from the South. This stance
is focused on dialogue and partnership, and aims to cultivate African expertise and excellence needed
for the accurate analysis of African and global challenges and the suggestion of appropriate solutions.
Read more
All opinions expressed in this publication are those of the author.
Policy Center for the New South
Rabat Campus of Mohammed VI Polytechnic University,
Rocade Rabat Salé - 11103
Email :
[email protected]Phone : +212 (0) 537 54 04 04
Fax : +212 (0) 537 71 31 54
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