Trade policies have evolved beyond economic efficiency, increasingly reflecting non-trade objectives like climate action, human rights, and sustainability. This complicates the negotiation framework.
Trade disputes between countries occur periodically because of disagreement over unfavourable treatment of a country’s exports to another market, either by imposing tariffs (customs duties) or other restrictions.
The term trade “war” is an exaggeration but arises when a trade dispute deepens and extends with the imposition of retaliatory tariffs, as exemplified by the long-running dispute between the United States (USA) and the People’s Republic of China ( China).
There have been occasions where fights for control of trade routes resulted in open warfare, such as the Anglo-Dutch Wars (four) in the seventeenth century or the nineteenth-century Opium Wars (two) between China and Britain, in which Britain sought to protect the opium trade and China fought to end it.
It is now accepted that more international trade and lower tariffs benefit importing and exporting countries.
International trade expanded after WWII largely because of the USA’s leadership. The emergence of the current multilateral trading system formed a base for world economic growth.
Trade disputes between 166 members of the World Trade Organisation (WTO) are normally resolved by negotiation or using the WTO’s dispute settlement mechanisms.
Trade agreements also contain dispute resolution mechanisms. For example, the Caricom Treaty establishes the Caribbean Court of Justice as the final mechanism to settle trade disputes.
Currently, the WTO dispute resolution mechanisms are dead and rendered inoperable as the USA has blocked appointments to the WTO’s Supreme Appellate Body since 2019.
This situation was created by the first Trump administration because it complained of judicial activism and concerns over US sovereignty, meaning that the US lost cases.
Great power politics has a smaller chance of success in a rule-based world. Canada, China and Mexico are members of the WTO and the USA’s major trading partners, accounting for 40 per cent of US imports.
President Trump has embraced tariffs as a weapon because the USA’s market size gives it negotiating power. The USA exports only 11 per cent of its GDP, thus limiting the effect of retaliatory measures of affected countries.
Absent the WTO formal process, the US threat to impose tariffs on Canada and Mexico and the imposition of tariffs is a demonstration of power. The continuous commentary on the tariffs threatened, implemented, or suspended and the promise of more on other countries reflects a calculated strategy of intimidation.
Hence President Trump’s comment on his Truth Social platform, that Canada would be punished to a point where “it ceases to exist as a viable country.” This adversarial “negotiation” style is called distributive bargaining. There is a winner and a loser, as demonstrated in Trump’s book “The Art of a Deal”.
Negotiation, however, is about win-win propositions with mutually acceptable outcomes. If there is only one winner or continuous concessions by the weaker party, it increases the possibility that the other party will play hardball (Hamas/Israel?)
The threatened tariffs on Mexico and Canada were postponed in exchange for promises of things those countries were already doing. The quick reversal means other countries have fewer reasons to make substantial concessions, where performative promises may be enough.
As Martin Wolf indicates (FT 5/2/2025) this approach creates policy instability and makes the USA an unreliable partner. Embedding economic objectives with non-trade objectives increases the risk of dispute.
Increasing tariffs on Canada and Mexico to reduce their positive trade position and reduce illegal immigration and the flow of drugs guarantees a dispute. Tariffs are blunt tools that cannot curtail the drug trade or limit immigration.
Moreover, because Mexico, Canada, and China are the USA’s largest trading partners, the resulting inflationary effect will hurt US consumers. The US automobile industry is a prime example.
The North American Free Trade Area Agreement (NAFTA) integrated the automobile supply chains between Mexico, Canada, and the USA.
Sam Fiorani, vice president at research firm AutoForecast Solutions, said the proposed tariffs would cause “dramatic and immediate” financial fallout for USA automakers and other companies manufacturing vehicles in Mexico and Canada to sell in the US (Reuters).
Automakers Stellantis (39 per cent) General Motors (36 per cent) and Ford (18 per cent) source vehicle engines, transmissions, and other electrical components in Mexico or Canada. Tariffs will increase prices to US consumers.
The outright bans on Huawei and TikTok on national security grounds suggest that the US is attempting to protect its technology sector alongside other objectives.
The emergence of “DeepSeek”, the Chinese AI equivalent to ChatGPT, demonstrates that China’s homegrown talent can generate technological advances that surpass US commercial alternatives. China’s response to the imposition of ten per cent tariffs on China’s exports to the US was measured. There is more to come.
The USA is a great power elephant to Caricom and sees only its interests as legitimate. Despite sanctions, it is still importing crude oil from Venezuela and other countries, as it is too expensive to retrofit US refineries for lighter crude. Similarly, it imports just under ten per cent of its nuclear material from Russia.
US trade and foreign policy are now unpredictable. How is the T&T Dragon gas deal with Venezuela in the US interest?
Mariano Browne is the Chief Executive Officer of The UWI Arthur Lok Jack Global School of Business.
