We are in a geoeconomic era marked by wars, crises, and conflicts. The strategic rivalry between the United States and China is growing. This has led to a new awareness of dependencies and vulnerabilities and thus to a new focus on economic security and resilience. However, Donald Trump’s re-election as US president marks another watershed—not only, but especially in terms of trade policy: Since his return to the White House on January 20, so within just over two months, he has jettisoned all the assumptions and rules of the rules-based system of global trade.
Based on his memorandum for an America First Trade Policy, there has been a flurry of measures and announcements aimed at unilaterally restructuring trade relations in favor of the US and forcing concessions. This has happened regardless of whether the states in question are autocratic such as China or long-standing allies such as Mexico, Canada, and the European Union. With his aggressive, mercantilist trade policy, Trump is thus calling into question the global trading system (WTO), allied groups such as the G7 as well as transatlantic relations, which until now have formed the basis for alliances in geo-economic times.
Trump’s Reciprocal Tariff Approach
The WTO is often the focus of criticism: its rules are outdated, its Appellate Body is blocked, and reforms are stalled. Nevertheless, around 80 percent of world trade is still conducted in accordance with WTO rules. Its principles of “most favored nation” (MFN) treatment, non-discrimination, and transparency form the basis for modern trade. They are enshrined as the most important basic principles of the WTO, which the US played a key role in establishing.
Under the America First Trade Policy, the US no longer accepts the rules of the WTO as a basis for trade policy. This began in Trump's first term and has not changed. His administration isn’t interested in whether its trade measures (mainly tariffs) are WTO-compatible if it can resort to a power-based assertion of its interests. To this end, old laws from the Cold War such as the International Emergency Economic Powers Act (IEEPA) of 1977 or Section 232 of the Trade Expansion Act of 1962 are being brought back out of the drawer to enable quick and uncomplicated tariffs on the grounds of national security. These are being used to protect the American market (steel and aluminum tariffs), force negotiations (Mexico, Canada, and China), combat unfair market practices (China) or generate revenue (in the future).
However, Trump’s second term risks breaking up the multilateral system through a reciprocal tariff policy. On February 13, 2025, Trump announced his intention to introduce reciprocal tariffs on products from April 2—for every country. For him, this is “the fairest way.” As a result, all tariff lines of all trading partners are to be reviewed. William Reinsch, trade expert at the Center for Strategic and International Studies (CSIS), estimates that this would theoretically involve 2.6 million individual tariff lines and would require determining the country of origin for every product entering the United States.
This idea of reciprocal tariffs is based on Trump’s view that the US lowered its tariffs in the post-war period in order to promote the reconstruction of Europe, and that other countries benefited from this without lowering their own tariffs. Future reciprocal tariffs should therefore serve to rebalance the unfair division of trade, according to the “rebalancing” theory. This is intended to completely reorganize the world trade order in accordance with American ideas. Disregarding the principle of most-favored-nation treatment and non-discrimination, the aim is to enforce unilateral concessions, which cannot be appealed against because the WTO court of appeal is blocked.
However, reviewing all US trade relations is unmanageable due to the sheer scale of them. It is therefore likely that specific sectors and countries will be arbitrarily singled out, probably to scrutinize trade balances and allegedly discriminatory regulations. Alongside China and Mexico, Vietnam and Germany, and the EU as a whole are in the firing line here. If countries enter into bilateral deals with the US that are WTO-inconsistent (because they are not based on the principle of MFN), the entire basis of the WTO and thus of rules-based trade is at risk.
The next problem arises when trading partners such as China or Canada file a complaint with the WTO, as has already happened. If the respective panels rule against the US, the lack of an appeals body means that the proceedings come to nothing. Nevertheless, this could lead to Trump and his hardliners such as his trade advisor Peter Navarro deciding that the US is leaving the WTO—just as it has left the WHO and the Paris Agreement.
Toward America Only
Under the America First Trade Policy, there are no longer any allies. This in particular affects the neighboring states of Canada and Mexico, but also the states of the EU and their transatlantic convictions and orientation. The US is using trade policy to achieve numerous economic and (security) policy goals. This geo-economic approach only serves US interests, ignoring long-standing alliances such as the values-based G7.
Canada and Mexico, the free trade and (in Canada’s case) G7 partners, were hit first: On February 1, 2025, Trump announced tariffs of 25 percent because both countries were—allegedly—taking too little action against illegal immigration and the smuggling of fentanyl into the US. The tariffs were initially lifted for a month after concessions were made, but were reinstated at the beginning of March and partially withdrawn shortly afterwards. The basis for the tariffs is the IEEPA, which can be applied if there is an unusual and extraordinary threat to the national security, foreign policy, or economy of the United States.
The next round of tariffs applies globally and will therefore affect the EU and other allied countries for the first time. Trump imposed tariffs of 25 percent on steel and aluminum imports from March 12, 2025. These tariffs, which were already imposed in 2018—during his first term—on the grounds of national security (Section 232 of the Trade Act of 1962), are now being reactivated and are to apply worldwide without any exceptions.
The allied G7 countries won’t be spared the reciprocal tariffs. As his America First Trade Policy memo makes clear, Trump wants to examine all tariff lines to determine whether American companies are being treated unfairly. This includes the level of the respective tariffs, trade deficits in goods, regulations (for example in the digital sector such as the EU’s Digital Market Act and Digital Services Act), digital taxes, sales taxes, and other undefined measures. Counter tariffs are then to be imposed from April 2. This will most likely also affect the EU.
This calls into question the continued existence of aligned bodies such as the G7. In 2025, the G7 summit will take place in Canada, which Trump has threatened to make the 51st state of the US. If Trump sides with Russia on foreign policy this year, the G7 may well become ineffective.
Trump’s proposal to readmit Russia to the G7 is unthinkable for the values-based group. Over the next four years, the G7 must therefore try to reach agreements wherever possible but, if necessary, it must ride out Trump’s presidency in the form of a G6.
The Rivalry with China
China remains the main challenge to US economic, technological and security supremacy. Under the America First Trade Policy, the previous investigations into unfair trade measures under Section 301 of the Trade Act of 1974 are therefore to be resumed. At the same time, Trump imposed new tariffs totaling 20 percent in February and March 2025 on the basis of the IEEPA in the fight against illegal immigration and the smuggling of fentanyl into the US.
At the same time, the new memo on the America First Investment Policy of February 21, 2025, stressed that the Committee on Foreign Investment in the United States (CFIUS) should be used to prevent Chinese investments in technology, critical infrastructure, healthcare, agriculture, energy, raw materials, and other strategic sectors. For the first time, this also includes “greenfield” investments.
This amounts to a further decoupling of the US from China. Whether Trump means the 20 percent tariffs as a signal that he is interested in a deal with China remains to be seen. As in so many areas, the outcome is difficult to anticipate due to Trump’s unpredictable actions. The conflict in Sino-American relations will probably continue to smolder, likely leading to further fragmentation of the global economy.
Necessary Responses
What will be the consequences of the threats and the disregard of multilateral rules? First of all, the US position must not lead to other countries ignoring the rules-based trading system. It is essential for the survival of the WTO and of like-minded informal groups such as the G7 that member states refrain from discriminatory measures against other countries in order to meet Trump's demands. Otherwise, the basis for rules-based trade will be lost.
Alan Wolff, former American Deputy Director of the WTO, emphasized that the US only accounts for 9 percent of global goods exports. The future of rules-based trade therefore primarily depends on the rest of the world. He suggested that a critical mass of WTO members should adopt a code of conduct for the global trading system in 2025. The signatories should commit to maintaining the rules-based world trade system as much as possible. If the EU, the Asian-Pacific states, and the African Union (AU) were to participate, a large part of global trade would be covered.
Smaller informal formats such as the G7 are on the brink. If cooperation with the US is possible in some areas, it should be used. The G7 must not give in to Trump's bullying tactics. In many areas, it will therefore come down to the G6 states coordinating with each other—as they have done in the past—so as not to jeopardize existing cooperation among long-standing allies. At the same time, the G6 should coordinate with allied states such as Australia and South Korea in order to take joint and coherent action against illegal measures (such as reciprocal tariffs). They should coordinate closely and react in accordance with the rules. At the same time, other democratic middle powers could be brought on board.
In addition to this multilateral and plurilateral cooperation, the EU must also nurture bilateral transatlantic relations. In addition to offers to expand LNG purchases, for example, European Commissioner Maroš Šefčovič in February proposed lowering the conflict-prone car tariffs. This is the right approach, but it should apply to all WTO member states in a WTO-compliant manner. In the case of coercive measures, the EU must react sharply and unanimously; this also applies to Germany.
It is also important to become more independent of developments in the US and China. This involves strengthening the EU’s own competitiveness and completing the internal market based on the recommendations outlined by the former European Central Bank president and Italian prime minister, Mario Draghi. Moving toward greater strategic autonomy is of great importance for the EU, even if the openness aspect must not be neglected.
Although Europe is a global player in trade, it is poorly positioned in geopolitical issues. It must therefore urgently strengthen its competitiveness and learn to use its market power to defend its interests and values. At the same time, new alliances must be formed with democratic middle powers in order to defend rules-based trade. Only through partnerships with democratic middle powers can the rules-based system survive—even without the United States.
Claudia Schmucker leads the Center for Geopolitics, Geoeconomic, and Technology at the German Council on Foreign Relations (DGAP).
