Trade Wars: EU and Mexico strike historic trade pact, Canada prepares to retaliate and Krugmann says that Trump is in for a rude awakening

Sources: The Mirror US, The Tyee, Reuters, and AP

International solidarity and retaliatory action against the American bully may be the best answer to Donald Trump's tariffs. Look at the EU and Mexico's modernized 2000 Global Agreement, a pivotal step aiming to foster political and economic ties between the two sides. Look at Canada's resolve to respond to American tariffs amidst Trump's constant bullying. And hear what Nobel-winning economist Paul Krugman has to say: Canada is likely to win Trump’s Trade War and the 47th POTUS is in for a rude awakening. 

To begin with, the European Union and Mexico have agreed on a landmark deal that addresses the evolving geopolitical landscape and positions both parties to navigate challenges such as trade dependencies and global economic uncertainties. The modernized agreement, signed on January 17, introduces extensive measures to enhance trade, including eliminating tariffs on key agri-food products and bolstering access to public procurement markets on both sides. European farmers stand to benefit significantly, with tariffs as high as 100% on exports such as cheese, pork, and wine removed, streamlining trade in traditional EU products. Mexico, in turn, gains improved access to its agricultural and raw material exports, such as asparagus, copper, and zinc, reducing reliance on US markets.

This renewed partnership comes at a critical juncture, as both Mexico and the EU face potential economic disruptions from renewed US tariff threats under the incoming Trump administration. By diversifying trade relationships, Mexico aims to mitigate its overwhelming dependence on US trade, which constitutes 80% of its exports. Meanwhile, the EU sees this agreement as an opportunity to reduce its reliance on China, particularly for critical raw materials, while securing sustainable supply chains.

At the same time, Canada says it is ‘ready to respond’ after Trump threatened to impose 25% tariffs on the country - on February 1st. Canada’s foreign minister, Mélanie Joly, has now hit back at the comments, saying the country is “working on retaliation”. She also said her government would “continue to work on preventing tariffs”. The nation’s finance minister, Dominic LeBlanc, further stated that Canada was prepared for any developments. He told AP: “None of this should be surprising. Our country is absolutely ready to respond to any one of these scenarios... It would be a mistake for the American government to proceed with imposing tariffs, in terms of the cost of living in the United States, in terms of jobs in the United States, and the security of supply chains.”

Finally, as the Tyee reports, Canada may find itself in a stronger position than the United States if a trade war breaks out between the two countries. This is Paul Krugman's conclusion, not ours, evidently. The distinguished professor of economics, winner of a Nobel prize in that field and for almost 24 years until late last year the New York Times’ widely respected economics columnist argued in his post on Saturday that U.S. president-elect Donald Trump, being sworn in yesterday and vowing to declare trade war on Canada, may imagine that the United States would have the upper hand, but it ain’t necessarily so.

“He’s likely to have a rude awakening,” Krugman wrote, after celebrating the fact that since Justin Trudeau’s “embarrassing, groveling visit to Mar-a-Lago... Canadians seem to have found their spine.”

“If you look at the actual composition of U.S.-Canada trade, it suggests if anything that Canada is in a stronger position if a trade war breaks out,” he wrote. This is because, “outside oil and gas, U.S. producers have more to lose in terms of reduced sales in Canada than Canadian producers have to lose in reduced sales to the United States.”

Moreover, Krugman speculated (sensibly), “Trump really, really won’t want to impose tariffs on Canadian oil, which would directly increase energy costs in the U.S. Midwest.”

Indeed, he added, “Canada could weaponize its oil by imposing export taxes, and officials are reportedly considering that option if the trade war escalates.”