By targeting allies and neighbours with tariffs, the US is playing into the hands of China
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“Our strategy on tariffs will be to shoot first and ask questions later.” That was what one of Donald Trump’s key economic policymakers told me late last year.
That kind of macho swagger is currently fashionable in Washington. But the US president’s shoot-from-the-hip tactics are profoundly dangerous — for America itself, as well as the countries that he has targeted with tariffs. The potential economic risks for the US — higher inflation and industrial disruption — are well known.
The strategic consequences for America are less immediately obvious — but could be just as serious and even longer lasting. Trump’s tariffs threaten to destroy the unity of the western alliance.
He is sowing the seeds of an alternative grouping formed by the many countries that feel newly threatened by America. Co-operation will be informal at first, but will harden the longer the tariff wars go on.
The collapse of western unity would be a dream come true for Russia and China. Trump himself may not care; he has often expressed his admiration for Vladimir Putin and Xi Jinping. But Marco Rubio and Mike Waltz — the men Trump has appointed as secretary of state and national security adviser — both claim to believe that containing Chinese power is the central strategic challenge facing the US.
If that is the case, it is profoundly stupid for Trump to impose tariffs on China, Mexico and Canada. In so doing, he is creating a convergence of interest between these three countries — as well as the EU, which has been told it is next in line for the tariff treatment.
When the Biden administration took office in 2021, the EU was poised to push through a new investment agreement with China. But that was abandoned after pressure from Washington and blunders by Beijing. By the end of the Biden period, the US and the European Commission were working closely together on efforts to “de-risk” trade with China and to restrict exports of key technology.
The Biden administration’s key insight was that, if the US is engaged in a global contest with China, it is much more likely to prevail if it can persuade the other advanced democracies to work alongside it. Trump, by contrast, has decided to go after America’s allies much more vigorously than its adversaries.
The likely consequence is that he will drive those allies back towards China. European policymakers already know that the ambitious targets they have set for the green transition will be impossible without Chinese electric vehicles, batteries and solar panels. The threat of losing American markets will make the Chinese market look even more necessary.
When I suggested to a senior European policymaker last week that the EU might now consider warming up to China once again, she responded: “Believe me, that conversation is already taking place.” Some influential Europeans are even asking whether the US or China is now the more direct threat. This would have been an absurd question just two months ago.
But it is Trump — not Xi — who is talking about ending the independence of Canada, a Nato member state. And it is the Trump administration and Elon Musk — not the Chinese government — that is promoting the far-right in Europe.
Chinese mercantilism and Beijing’s support for Russia’s war on Ukraine remain major stumbling blocks to any rapprochement between China and Brussels. But if the Trump administration abandons Ukraine — and Beijing takes a tougher line with Russia — the way would be open for a European tilt towards China.
China will also sense new opportunities in Latin America as the continent bristles at America’s threats to Panama and Mexico. Aggressive US action against these countries — including military force — is distinctly possible, given Trump’s determination to regain control of the Panama Canal and to take on the Mexican drug cartels.
But Trump’s aggression towards Mexico is likely to be counter-productive. If tariffs push Mexico into a deep recession, the flow of desperate people heading to the US is only likely to increase — as is the power of the drug cartels, whose exports are not subject to tariffs.
Canada and Mexico are painfully aware that the odds are stacked against them in a trade war with the US. But they are compelled to retaliate. No national leader can afford to seem weak in the face of American bullying.
And hitting back against Trump is probably the right strategic move. As one European foreign minister put it to me recently: “If Trump punches you in the face and you don’t punch back, he’ll just hit you again.”
Countries such as Britain and Japan that have not yet been singled out for tariffs might breathe a sigh of relief. But they are kidding themselves if they think keeping a low profile will buy them immunity.
If Trump decides that his first tariff war has worked, he will certainly look for new targets. Corporate America also needs to wake up and stop the sycophantic prating about the return of “animal spirits” to the US economy.
What Trump is essentially offering America is economic autarky and the destruction of the western alliance. That would be an economic and strategic disaster for American business — and for the US as a whole.
U.S. tariffs on Mexico to be paused for a month, Trump says
MARKETS SWOON
NATIONAL EMERGENCY
Gold hits record high as Trump tariffs spur safe-haven buying
Feb 3 (Reuters) – Gold prices hit an all-time high on Monday, bolstered by safe-haven inflows after U.S. President Donald Trump’s tariffs on Canada, China and Mexico added to concerns of inflation that would dent economic growth.
Spot gold rose 0.6% to $2,816.53 per ounce by 09:38 a.m. ET (1438 GMT), after hitting a record of $2,818.58 earlier in the session.
U.S. gold futures rose 0.7% to $2,855.90, trading at a higher premium to spot rates.
“It’s the implications of the tariffs… a lot of people believe that this could raise inflation upwards and also impact economic growth because of the higher costs involved with that and tariffs leaving a stagflationary type environment,” said Phillip Streible, chief market strategist at Blue Line Futures.
The 25% tariffs imposed by Trump on Canadian and Mexican imports from Tuesday, along with a 10% charge on Chinese goods, fuelled fears of a trade war that could slow global growth and feed inflation.
Bitcoin finds local bottom at $91K amid global trade war concerns
Canada, Mexico and China promised “retaliatory measures” for Trump’s tariffs, which “heightened investor anxiety,” leading to the crypto market downturn, analysts told Cointelegraph
Bitcoin’s price found its local bottom just above the $91,000 mark, highlighting its increasing sensitivity to macroeconomic developments.
Bitcoin’s
price fell to an over three-week low on Feb. 3 of $91,530 at 2:00 am UTC, which marked the local bottom, before recovering to $95,306 as of 8:14 am UTC, Cointelegraph Markets Pro data shows.
Bitcoin’s correction came two days after President Donald Trump signed an executive order to impose import tariffs on goods from China, Canada and Mexico, according to a Feb. 1 statement from the White House.
The downturn was driven by escalating investor concerns over a potential global trade war following Trump’s tariffs, according to Ryan Lee, chief analyst at Bitget Research.
The analyst told Cointelegraph:
“While Bitcoin has historically been viewed as a hedge against traditional market volatility, its recent performance highlights growing sensitivity to global economic events. The current reaction underscores how geopolitical tensions and policy decisions are increasingly shaping cryptocurrency market dynamics.”
Canada, Mexico and China have promised “retaliatory measures” for Trump’s tariffs, which “further heightened investor anxiety, prompting a shift away from riskier assets, including cryptocurrencies,” the analyst said.
Bitcoin’s movement remains in line with previous analysts’ predictions of a “local top” above $110,000 in January, before a deeper retracement.
Based on its correlation with the global liquidity index, Bitcoin’s right-hand side (RHS), which marks the lowest bid price someone is willing to sell the currency for, before an “interim peak in liquidity,” may lead to a correction below $70,000 in February, Raoul Pal, founder and CEO of Global Macro Investor, said in a Nov. 29 X post.
Bitcoin remains sensitive to macroeconomic developments
Despite Bitcoin’s narrative as a hedge against volatility in traditional finance markets, it remains sensitive to economic developments.
Still, Bitcoin may still see a rebound compared with traditional markets, according to Alvin Kan, chief operating officer at Bitget Wallet.
Kan told Cointelegraph:
“While the sell-off reflects a typical risk-off reaction to macroeconomic shocks, Bitcoin’s safe-haven reputation still leaves room for a rebound if digital assets increasingly serve as hedges against inflation and currency devaluation.”
Despite short-term correction concerns related to the $36 trillion US debt ceiling, industry watchers remain optimistic about Bitcoin’s prospects for the rest of the year.
Analyst predictions for the rest of the 2025 market cycle range from $160,000 to above $180,000.
Tariffs will lift US gas prices within days
The tariff on products imported from Canada will cost Americans 15 cents a gallon or more at the gas pump relatively soon. That’s not as much of a price hike as we could have seen.
Tariffs on US imports from Canada and Mexico were announced Saturday by the Trump administration and are set to take effect on goods arriving here Tuesday, as President Donald Trump followed through on a campaign promise by taking action against America’s two biggest trading partners. The tariffs, a tax on goods crossing the border, will affect the price Americans will pay for all manner of imports from the countries, including cars, lumber and agricultural products. But gasoline and other energy products could be among the first to see the expected price increases.
One factor limiting the price increase is the tariffs on energy products is only 10%, not the 25% tariff announced on other products from Canada. A Trump administration official told reporters on Saturday that a lower tariff on energy was done to spare Americans from from having to pay even more for gasoline and heating oil, even though President Donald Trump has long insisted, incorrectly, that it is the foreign nation, not Americans, who pay the cost of any tariffs that are imposed.
“We took this step simply because… a 10% rate on energy will minimize any disruptive effects we might have on gasoline and home heating oil prices,” said the administration official, who spoke on condition he not be identified.
Wholesale gasoline prices were up 8 cents a gallon on trading markets early Monday, said analyst Andy Lipow of Lipow Oil Associates. And the price at the pump could go up even more as the cost of the tariffs are added on top of the increase in market prices. The average price of a gallon of gas stood at about $3.10 a gallon as of Monday, according to AAA, unchanged from Sunday’s price reading.
Diesel prices were trading up 10 cents a gallon. Higher prices for diesel could lead to a fuel surcharge by trucking companies, which could bleed through to the price of goods, since virtually every item in Americans’ homes were on a truck at some point. And it could also raise the price of heating oil, which is the same basic product as diesel fuel.
Market prices for wholesale gasoline are up because traders are expecting some of the crude oil and gasoline now being imported from both Canada and Mexico will end up being diverted to other markets, causing some shortages in the United States. Oil futures are up 2% to 3% in Monday morning trading. One reason that they’re not up more is that futures contracts are for purchases of oil to be made in the next few months, and some investors are betting that the tariffs will end up being short-lived.
But that doesn’t mean there won’t be some short-term price increases at the pump.
“What you are seeing is a great reshuffling of oil about to begin,” Lipow told CNN Monday. Higher prices might not happen overnight, he said, but, “You’ll see something at the pump in the next five to seven days. Depending on where you are in the country, it could be up to another 15 cents a gallon.”
Mexico also source of oil, gasoline imports
Since Canada is the largest source of imported oil and gasoline into the US market, it’s been getting much of the attention. But Mexico is also a major exporter of both oil and gasoline to the United States. But unlike a lot of Canadian petroleum products that arrive here via pipeline and is difficult to divert to another market, Mexican oil and gasoline arrives primarily via ship, so it can easily be sold elsewhere. Since Mexican oil and gasoline received a 25% tariff, that diversion will start almost immediately, according to an analysis from Goldman Sachs on Sunday.
“Expect the bulk of the previously seaborne Canadian and Mexican exports to the US to be rerouted,” it said in its note.
But the good news for American consumers is that many oil producers in Western Canada have little alternative for their oil other than sending it to US refineries via existing pipelines. That could make it difficult for those producers to pass on the full cost of the tariffs to their US customers, said the note from Goldman Sachs. But some of that cost of tariffs will be borne by US customers.
“We expect Canadian oil producers to eventually bear most of the burden of the tariff with a $3 to $4 a barrel wider-than-normal discount on Canadian crude given limited alternative export markets, with US consumers of refined products bearing the remaining $2 to $3 a barrel burden.
One factor limiting the price shock at the pump is the time of year. Gas prices are typically near a low for the year in February due to weak demand, said said Tom Kloza, global head of energy analysis for OPIS. The current seasonal weakness in energy prices could limit the bite at the pump.
If the tariffs stay in place through summer, the impact will be greater, he said, causing not just pain in people’s wallets on a small scale, but inflation on a larger level.
“It’s inflationary, but not as inflationary as it would be in April, May or June,” Kloza told CNN late Saturday. “We are using about 1 million barrels a day less gasoline on February 1 than on July 1.”
The impact will not be felt equally nationwide, because most Canadian oil is shipped to Midwest refineries via pipeline, Kloza said. The states served by those refineries are Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Montana, Nebraska, Ohio, North Dakota, South Dakota, Pennsylvania and Wisconsin.
“Interestingly, 12 of those 16 states begin February with an average retail gasoline price under $3 a gallon,” he said. “That probably won’t last.”
New England gets a lot of gasoline from a refinery run by Irving Oil in Saint John, New Brunswick. That also can be shipped elsewhere, so the diversion of that gasoline could send gas prices in New England up 20 cents a gallon, said Lipow
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