The Art of Losing Friends: U.S. Tariffs Nudge Allies Toward China

Dr James Reeves

April 12

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The United States unleashed an unprecedented series of tariffs, based not on trade barriers but on trade deficits. The fallout in the stock and bond markets has likely been the driver behind the recent 90 day pause. Though it should be noted that the tariffs remaining still equate to around 20% on total imports. Tariffs can be paused, but the damage to the reputation of the US as a trusted ally is not so easily rectified. President Trump has boasted that countries are 'kissing my ass' in phone calls due to the pressure of tariffs, and he may indeed secure some compliance from smaller trade partners. Recent actions and statements from Europe, Australia, and other key U.S. allies paint a far less favourable picture of United States trade relations, however. This is underscored by a series of strategic discussions and agreements between China and some of America's closest allies.

China have begun to plan around US trade in the wake of the 100% + tariff tit for tat trade war with the US. One such move has been to shift its energy supply chains away from reliance on US liquid natural gas (LNG). On 17 March, for instance, Australian energy giant Woodside Energy (ASX: WDS) announced a 15-year deal with China Resources Gas International to supply 0.6 million metric tons of LNG annually, starting in 2027. It’s a long-term play that underscores China’s strategic effort to diversify and lock in energy security — this time, with help from a close US ally. This was suddenly and dramatically exacerbated when on April 8th, China halted all natural gas imports from the United States – around $1.5 billion worth of exports. The once ally Australia, shocked by being tariffed - despite being one of few nations like the UK and Brazil to have a trade deficit with the US – has become a US trade competitor.

The EU response has been even more concerning regarding US trade relations, and frankly, their reputation writ large. President of the European Commission, Von der Leyen, who during her first mandate spearheaded a new policy to de-risk from China, has in recent months softened her tone. Now, the Commission chief prefers to speak about a "transactional" foreign policy to "engage constructively" with Beijing. More surprising still, the Commission states that Brussels and Beijing have agreed to take a second look at the option of "price undertakings" (minimum prices) to resolve the long-running dispute on China-made electric vehicles. The option was repeatedly floated last year but abandoned due to a lack of progress. Europe's willingness to ease on Chinese EVs is hugely significant given the reliance of domestic car companies like BMW and Audi in Germany.

Sentiment matters in democracies. Recently in an interview with Fox News, Treasury Secretary Scott Bessent responded to Spain and China trade talks by saying looking to China instead of the United States would be a "losing bet for the Europeans" and was akin to "cutting your own throat.". Even if true for some European nations like France and Italy reliant upon US trade, the threats and belittling coming from the White House is unacceptable to European voters. Recent plummets in European travel to the US and the boycotting of Tesla are just a few examples of the growing anti-American sentiment growing in Europe, as well as in the Anglosphere (particularly Canada).

Fortunately for the US, Europe are a far cry from creating close ties with China. The relationship between China and Europe is unlikely to flourish while the war in Ukraine continues. Since the beginning of Russia’s invasion of Ukraine in 2022, the EU has been frustrated with China and concerned by Xi’s "no limits" partnership between him and Vladimir Putin. This is made most apparent by China’s foreign visit decisions. Xi is expected to attend the 9 May celebrations in Moscow yet spurned the offer to travel to Belgium for the EU-China summit in July. It would be an untenable position for Europe to truly create strong ties with such a threat to democratic values, no matter how tempting US actions make such a move.

Ironically, Trump’s failure to end the war in Ukraine as quickly as he promised during his campaign has benefitted the US. The continuing Russian aggression and instances of Chinese troops found fighting for Ukraine, have subdued what could have been a mass exodus of America’s closest allies and trade partners.