Nowhere to hide: Trump tariffs leave trading partners cornered

Trade partners lack options, prefer negotiation over retaliation
China open to talks, India and Vietnam prioritise negotiations
EU considers retaliation, seeks new trade alliances

BEIJING/BERLIN/OTTAWA, April 4 (Reuters) - U.S. trading partners have few 
good options in their trade war with President Donald Trump, other than to 
sue for peace.

Hit by 10%-50% tariffs on their exports to the world's dominant economic 
superpower, most lack the firepower to hit back or the political will to 
slug it out, say government officials, economists and trade experts.

This is why the vast majority of trading partners did not immediately 
retaliate and indicated a readiness to negotiate a face-saving compromise 
with Trump. Even among those that have taken counter measures, the door 
was left ajar to talks.

From China, which on Friday slapped extra tariffs of 34% on all U.S. 
goods, to Canada, which has taken limited retaliation, nations are tipped 
to come to the negotiating table sooner or later, given U.S. consumption 
is so important globally -- two-thirds bigger than EU consumption, 
according to World Bank data.

Other than talks, governments have limited options to protect their export 
industries and broader economies.

These include spending on state aid or on broader economic stimulus -- 
Spain announced a €14 billion ($15.5 billion) aid package on Thursday -- 
or looking to greener trade pastures. German officials are eyeing up 
Mexico, Canada and India.

But for a world already deep in state debt after years of pandemic-era 
stimulus spending, it will be tough for some to fund the subsidies and 
other financial aid required to stave off economic growth downgrades, 
profit warnings and layoffs.

Economists expect Beijing to unleash more fiscal stimulus to support its 
economy, which sells goods worth more than $400 billion a year to the 
United States. It will also try to develop other export markets, according 
to Chinese policy advisers.

"We need to strengthen our coordination with ASEAN, Japan, South Korea, EU 
and UK," said one Chinese adviser, speaking on condition of anonymity 
because of the issue's sensitivity.

Trump's "Liberation Day" tariffs took the tax imposed on Chinese exports 
since his January inauguration to 54%.

Even with China's economic armoury -- its financial might, domination of 
critical mineral and metal production for advanced industries and 
centrality to global supply chains -- a negotiated truce is ultimately 
expected, the trade adviser said.

That could take a while, given the enmity between Washington and Beijing, 
though there is speculation that Trump and Chinese President Xi Jinping 
could meet in the United States in June.

https://www.reuters.com/graphics/USA-TRUMP/TARIFFS/klvymmwymvg/chart.png

The full list of economies that U.S. President Donald Trump announced will 
have at least 10% tariffs or higher applied.

ECONOMIC SHOCKS
Countries lacking China's power may reach the table sooner.

India, hit with a 27% tariff, is already in talks and is not considering 
retaliation, said a government official. It had made concessions to 
Washington ahead of the latest tariffs and it is open to cutting tariffs 
on more than half of U.S. imports worth $23 billion in a first-phase deal, 
government sources said.

Vietnam, too, is expected to prioritise negotiations, with limited scope 
for subsidies and trade diversification. It could try leveraging the 
exposure that some U.S. manufacturers have to Vietnam to pressure the 
Trump administration, according to Leif Schneider, head of international 
law firm Luther in Vietnam.

But, he added, "Vietnam will likely prioritise negotiations to avoid an 
economic shock."

Hit by a 46% tariff, it ranks as the sixth-biggest exporter to the United 
States, thanks to its success as an offshoring option for manufacturers 
diversifying away from China.

Southeast Asia in general has nowhere to run. Its efforts to deepen trade 
with China, Japan and other big neighbours have led to an alphabet soup of 
trade groupings which facilitate trade but fall well short of compensating 
for a U.S. trade shock.

Ahead of Trump's announcement, China, Japan and South Korea held their 
first economic dialogue in five years, seeking to boost regional trade. 

But there is scepticism it will go far, not least because these three are 
exporting powerhouses, not net contributors to global demand.

LAYOFFS HAVE STARTED
The European Union, already feeling abandoned by the Trump administration 
over security, said the common market of 450 million people was ready to 
retaliate against Trump's 20% tariff against the bloc and also look to 
other markets.

"Forging alliances ... is the order of the day," German Economy Minister 
Robert Habeck said, singling out Mexico, Canada and India where closer 
trade relations would make sense.

Trade deals can take time, though -- time that Europe and others don't 
have. The EU and South America's Mercosur bloc talked for 25 years before 
unveiling a free trade deal in December. Trump's reciprocal tariffs take 
effect on Wednesday.

It also takes time to rewire an economy to cope with global protectionism, 
which is what German economists say is the right response. Structural 
reform, such as more competition and tech investment, is preferable to 
state stimulus, they say.

"There is not much that either fiscal or monetary policy can do in the 
short term to offset the trade shock," Deutsche Bank economist Robin 
Winkler said.

German bank Berenberg says a large part of the new U.S. tariffs can be 
rolled back in negotiations, with Europe offering concessions such as more 
contracts to U.S. defence firms.

Canada was spared additional tariffs this week but it is reeling from 
earlier, 25% U.S. tariffs on its auto, steel and aluminium exports. Canada 
is splurging on subsidies, funded by its own retaliatory tariffs, but the 
pain is still being felt.

European carmaker Stellantis NV (STLAM.MI), opens new tab said on Thursday 
it would pause production at a Canadian assembly plant. And companies have 
reported that they have already started layoffs and pivoting towards newer 
markets.

Some nations have complained to the global trade referee, the World Trade 
Organisation, but that is judged a feeble option by trade experts, not 
least because Trump paralysed its top appeals bench in his first term. Nor 
is the Geneva body seen as a likely venue for renegotiating tariff 
disputes.

"If they keep pushing protectionism and sticking to this one-sided 
perspective, I don't see them coming back to the WTO for multilateral 
negotiations anytime soon," said Marco Molina, of consulting firm Molina & 
Associates and former deputy permanent representative of Guatemala to the 
WTO.

"And that's a real shame because the WTO was literally designed to address 
issues like these."

($1 = 0.9057 euros)

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