Trade wars ‘could reshape supply chains and inform business investment’

Dr. Totis Kotsonis and Andreas Haak of Pinsent Masons were commenting after the Trump administration began applying a blanket 25% tariff on the import of steel and aluminium into the US. Policymakers in other jurisdictions, including the EU, China and Canada have announced plans to implement retaliatory measures, though others – like the UK government – have decided, for now at least, not to retaliate.

The latest action follows on from the introduction of a package of US tariffs on Canadian, Mexican and Chinese imports, announced earlier this year. That move by the US led China to impose tariffs of its own on US imports to the country, targeted predominantly at food and agricultural produce. That action has also led to a souring of relations between the US and Canada, with Canadian officials, among other things, threatening to impose a surcharge on electricity supplied to some US states in response.

For its part, the Trump administration has said tariffs are necessary to address the US’ trade deficit, which it claims threatens the US’ economic and national security. Trump has promised to “counter non-reciprocal trading arrangements with trading partners by determining the equivalent of a reciprocal tariff with respect to each foreign trading partner”.

International trade law expert Dr. Totis Kotsonis of Pinsent Masons, who is also a European Commission approved arbitrator for bilateral trade disputes under EU trade agreements, has previously advised businesses to engage in scenario planning to mitigate the worst effects of tariffs. He said businesses across sectors and geographies are likely to feel the impact of escalating trade wars.

“The tariffs saga continues with a strong element of unpredictability: tariff hikes being announced against major trading partners only for them to be suspended in quick succession and then reimposed, only for them to be partly disapplied,” London-based Kotsonis said. “What is all too clear in this messy state of affairs, is that it would be very difficult indeed to seek to justify any of these measures as consistent with World Trade Organization (WTO) commitments.”

“Whilst the EU, Canada and China have already challenged the US tariff hikes at the WTO, they have also proceeded swiftly to impose retaliatory measures against the US. The legality of at least some of these measures is not entirely without doubt. Whilst the need for urgent retaliatory action might be understandable from a purely economic and even political perspective, the need to take such countermeasures, outside the strict confines of WTO dispute resolution procedures, further highlights the breakdown of the international trade legal order,” he said.

“We have already seen stock markets around the world rattled by the tariff hikes and, more generally, the uncertainty that the US trade policy has created in terms of international trade. We know that a number of businesses have delayed investment decisions waiting for the dust to settle before confirming or re-defining business strategies for the short, medium and even long-term. Ultimately, some businesses might look to review their supply chains or investments in a way which seeks to minimise exposure to markets affected by the US tariffs, which in principle might mean seeking to invest further into the US. At the same time, businesses in the US itself won't be immune to trade wars – as retaliatory measures by US trading partners take effect, this will make imports into and exports from the US more expensive,” he said.

“What is clear is that, in an interconnected world where supply chains cross multiple times numerous borders, seeking to insulate a business from the higher costs and commercial uncertainty that trade wars create, would be a tall order,” he said.

Düsseldorf-based Andreas Haak of Pinsent Masons said the timelines of the EU’s planned response to the steel and aluminium tariffs outlined by the US is noteworthy.

“The timing of the measures to kick in is carefully calibrated to leave enough space for a negotiated solution,” Haak said, highlighting the European Commission’s two-pronged approach.

First, the Commission plans to allow the suspension of “rebalancing” measures it previously announced, to lapse.

The Commission’s rebalancing measures were outlined in 2018 and 2020 after the previous Trump administration had introduced tariffs of its own on European steel and aluminium exports. The 2018 measures took effect immediately while the 2020 measures were due to enter into force on 1 June 2021. However, when Joe Biden succeeded Trump in the White House, the Commission was able to reach an agreement with the US administration to suspend the effect of both sets of measures before the 2020 measures began to apply, with the Biden administration agreeing to exclusions to the US steel and aluminium tariff regime for EU exporters in return. The Commission extended the suspension of its measures in late 2023, but that is now due to lapse on 31 March 2025. The Trump administration considers the agreement reached between Biden and the EU to be obsolete.

“The suspension of the rebalancing measures against the US will lapse on 1 April 2025,” Haak said. “If they have not done so already, companies involved in transatlantic trade should carefully comb through the tariff codes set out by the European Commission in its implementing regulations, to determine whether any of the products they supply will be impacted. A wide-range of products – from dishwashers to cranberries – are in-scope of the EU’s rebalancing measures.”

The second element of the Commission’s plan is to introduce a fresh wave of countermeasures on US exports to the EU. The Commission said it will consult with individual EU member states and industry before finalising the new package, which it hopes to adopt by mid-April.

In total, the Commission said its retaliatory measures could match “the economic scope of the US tariffs”, which it has calculated to be worth up to €26 billion.

Haak said: “A mixture of industrial and agricultural products appear to be in-sight of the Commission’s fresh measures. Businesses should take the opportunity to feed their views into the two-week stakeholder consultations that the Commission has now initiated, and to also relay any concerns they might have to individual member states, so that they are reflected in the finalised package the Commission might implement.”

Kotsonis added: “Recent experience might suggest that the breathing space before the implementation of the EU’s retaliatory measures could provide an opportunity for the two sides to explore de-escalation. At the same time, the US trade representative statement today criticising the EU for its long-term ‘opposition’ to US efforts to ‘reindustrialise’ and asserting that the EU’s ‘punitive action completely disregards the national imperatives of the United States’ is not encouraging and signals the huge gap between the perspectives of the US administration and the EU, one of the US’s largest trading partners.”

“Once again, unless cooler heads prevail, businesses in the major economies of the worlds, should re-assess their supply chains arrangements, business operations and planned investments, and do their best to prepare for the trade uncertainties that still lie ahead,” he advised.