World Caught in Tariff War Whirlwind Just 50 Days After Trump's Inauguration

EU Announces Retaliatory Tariffs Against US

Business Environment at 'Zero Hour'

WSJ: "The Most Foolish Trade War in History"

Just 50 days after Donald Trump was inaugurated as US President on January 20, the entire world has been fully drawn into the whirlwind of a tariff war.

As the United States began imposing 25% tariffs on steel and aluminum worldwide on the 12th (local time), the European Union (EU) immediately responded by imposing retaliatory tariffs on US products worth 26 billion euros (approximately $41 trillion) starting that day. China has already been responding by increasing retaliatory tariffs and export controls. The 25% tariffs on Mexico and Canada remain uncertain, with a postponement until the 2nd of next month. Businesses forced into a 'zero hour' environment are bewildered.

While President Trump abandoned his campaign promise of universal tariffs, he plans to build a 'tariff wall' around the US market by announcing a series of reciprocal tariffs and item-specific universal tariffs. Steel and aluminum are just the beginning. President Trump has already declared his intention to impose tariffs on automobiles, semiconductors, pharmaceuticals, and lumber. He has directed the Commerce Department to investigate imposing tariffs on copper. On July 2, he plans to impose reciprocal tariffs against various countries. He has also announced a 25% tariff against the EU. Reciprocal tariffs and item-specific tariffs will be applied cumulatively.

Until early last month, there was speculation that Trump's tariffs might be negotiation cards. The prediction was that he would use tariffs as a tool, conditionally lifting them after getting what he wanted. A prime example was when he declared a 25% tariff on Mexico and Canada, then postponed it for a month after securing promises of strengthened border security.

The atmosphere is different now. The prevailing view is that it will be difficult to obtain exemptions or postponements easily, as President Trump is targeting tariffs themselves as his goal. After announcing his tariff policy at a Business Roundtable meeting with business leaders today, he said, "Companies are increasing investments in the US, such as building factories," adding, "They don't want to pay tariffs, whether it's 25% or whatever." He also emphasized, "Tariffs could be (higher than 25%)," and "The higher they are, the more companies will build (factories in the US), but ultimately the biggest achievement is not the tariffs but creating jobs." Regarding growing market concerns and sharp stock market declines, he dismissed them as "a momentary snapshot" and "transitional."

Existing contracts and agreements, including the US-Mexico-Canada Agreement (USMCA), and various legal rights are effectively being ignored. While there are significant concerns within the US Congress, it appears difficult to put on the brakes due to the strong momentum of 'MAGA (Make America Great Again)' supporting representatives. Senate Republican Leader John Thune said he doesn't prefer tariffs and "hopes the tariffs will be temporary." However, House Republican leadership, including Speaker Mike Johnson, included provisions in the federal budget bill preventing Congress from terminating the state of emergency declared under the International Emergency Economic Powers Act (IEEPA) that Trump is utilizing.

Due to the succession of unilateral and impromptu decisions, even factual errors are not being filtered out internally. In his congressional address on the 4th, President Trump publicly criticized Korea, claiming that Korea's tariff rate on US goods is four times that of the US rate. He seemed to have forgotten the fact that the Korea-US Free Trade Agreement (FTA) exists. On the 12th, White House spokesperson Caroline Levitt criticized Japan, showing data claiming Japan applies a 700% tariff rate on US rice, but this was based on incorrect figures from 20 years ago and distorted the fact that Japan does not impose tariffs on basic import volumes.

However, responses are not easy because President Trump threatens to unconditionally raise tariff rates further when counterparts protest. When Ontario, Canada, said it would impose a 25% additional tax on electricity going to the US, Trump said on the 11th that he would apply double the tariff rate (50%) on Canadian steel and aluminum. He also made the inflammatory remark that he could "permanently shut down" Canada's auto industry by imposing high tariffs. The 50% tariff plan was canceled five hours later after Ontario province put the additional tax on hold. The White House self-evaluated this as "an American victory."

Trump's unpredictable elastic tariffs are making it impossible for companies to accurately calculate the opportunity costs of investing in the US. Even American companies are asking the White House to reduce the uncertainty of tariff policies. The Wall Street Journal (WSJ) pointed out in an editorial that "the problem with trade wars is that once they start, they can spread quickly and become uncontrollable" and described the trade war against Canada and others as "the most foolish action in history."

The Wall Street Journal (WSJ) pointed out on the 11th (local time) that the stock market is plummeting in the early days of Trump's second administration compared to his first term. /WSJ website capture

Washington=Lee Sang-eun Special Correspondent selee@hankyung.com