Tariffs from U.S. President Donald Trump could push allies to forge closer relationships with other countries like China and India, according to former U.S. diplomat Wendy Cutler.
It comes amid the U.S. president’s threat to levy steep tariffs on European alcohol products, after the European Union said it would impose counter tariffs on 26 billion euros ($28.33 billion) worth of U.S. goods starting in April.
The 27-nation bloc’s tariff measures followed U.S. duties on all steel and aluminum imports.
Trump’s trade policies, which appear designed to rebalance the economic order in America’s favor, include targeted tariffs against Canada, Mexico and China.
Speaking to CNBC’s “Squawk Box Asia” on Thursday, Cutler, who formerly served as Acting Deputy U.S. Trade Representative, pointed out that traditional U.S. allies, such as the EU had announced “a very ambitious negotiating strategy.”
Cutler said “the EU had concluded a big deal with the Mercosur countries. The EU and India are going to restart their negotiations.”
Mercosur is the Spanish abbreviation for the Southern Common Market, a regional trade bloc made up of Argentina, Bolivia, Brazil, Paraguay and Uruguay.
The EU finalised negotiations with the Mercosur countries in December, a political agreement that the Center for Strategic and International Studies described as a “landmark deal” and the only one Mercosur has with a major trading bloc.
CSIS estimated that the deal eliminates tariffs on over 90% of bilateral trade, saving European exporters 4 billion euros annually while granting South American products preferential access to European markets. It added that this means “European products will enter its market under much better conditions than U.S. or Japanese products.”
‘China can help’
Competing powers, such as China, are also wooing other countries, Cutler said, highlighting that the world’s second-largest economy has upgraded its free-trade agreement with the ASEAN region.
“It’s making overtures to other countries, and if our partners can’t rely on us. Guess what? These other countries, including China, look more attractive.”
Cutler is not the only person to suggest Europe may be looking elsewhere as tensions between the U.S. and the region escalate.
“The reality is, in the broadest sense of the word, Europe has to look for alternative markets to the U.S. China can help,” David Roche, strategist at Quantum Strategy, told CNBC earlier this month.
“One thing I’ve learned at the negotiating table, you do need to have respect and trust if you’re going to reach a deal,” Cutler said.
“If someone’s at the table and they really feel that they’ve been unfairly treated, it’s hard to get them to move, to do what you want them to do,” she added.
What the world might see, Cutler said, is that countries might turn to multilateral trade agreements, such as the Regional Comprehensive Economic Partnership and Comprehensive and Progressive Agreement for Trans-Pacific Partnership. The U.S. is not party to either agreement.
She noted that Hong Kong has expressed interest in joining the RCEP, and the CPTPP successfully concluded the admission of the U.K., adding: “I expect other countries to express interest … I don’t think it’s out of the question that perhaps the EU even thinks about joining CPTPP. It’s a new world out there.”
Policy of chaos?
But, as the world’s largest economy, it is difficult to envision countries cutting all trade ties with the U.S.
As such, one question would be, if a country needs to navigate trade tensions with the U.S., how should it do it, especially with Trump constantly shifting stances on tariffs.
Stephen Olson, visiting senior fellow at the ISEAS-Yusof Ishak Institute, told CNBC Tuesday that Trump “zig-zags” on tariffs because he believes that by keeping trade partners on edge, it works in America’s favor.
Trump has “repeatedly stated that he thinks one of his greatest assets is his unpredictability, and he thinks that he thrives under situations of chaos. So when everyone else in the world is running around with their hair set on fire, Trump thinks that works to his advantage,” Olson said.
Olson indicated he felt there was little point in U.S. allies “trying to discern a thread of logic” in Trump’s trade policy. “My advice would be … don’t bother,” Olson said.
Asked how long Trump may maintain a stance of “zig-zagging” on trade policy, Olson said the U.S. president is not looking for “solid, concrete resolutions.”
Instead, Trump is likely “looking to keep trade partners always in the hot seat, and to always have that sword of Damocles hanging over their heads.”
A White House spokesperson was not immediately available to comment when contacted by CNBC.
— CNBC’s Abby Ryanto contributed to this report.
Source: CNBC