Trade War Escalation: How Countries Respond to US Tariff Policies

The trade war initiated by the United States (US) against several countries, including China, Canada, and Mexico, has intensified with retaliatory tariffs. The US now faces a 25% tariff increase on most imports from Canada and Mexico, along with an additional 10% tariff on Chinese goods. In response, both Canada and China have imposed retaliatory tariffs on US products, with Mexico expected to follow suit in the coming days. Economists view President Donald Trump’s tariff policies as a catalyst for job losses, slower economic growth, and rising prices.

To mitigate the economic impact, various countries have adopted strategic measures. Here’s how they are responding to the trade war escalation:

China: Expanding Free Trade and Stabilizing the Yuan

Despite high US tariffs, China remains committed to achieving an economic growth target of around 5% this year. According to Bloomberg (Thursday, March 6, 2025), the Chinese government is reviewing new policies to support exporters and plans to introduce them at the right time. Minister of Commerce Wang Wentao emphasized that China is expanding its free trade agreements with more countries to reduce reliance on a single market.

Additionally, the government is boosting domestic consumption by offering childcare subsidies and preschool education assistance. Meanwhile, the People’s Bank of China is focused on stabilizing the yuan to prevent excessive depreciation, maintaining tight monetary policies despite market liquidity challenges.

Germany: Fiscal Reforms to Counter US Tariff Impact

Germany is also preparing for the consequences of US tariffs on the European Union. Chancellor candidate Friedrich Merz aims to reform the country's long-standing fiscal policy, which has been in place since Angela Merkel’s leadership. Merz plans to increase infrastructure and defense spending to address global economic uncertainties.

One of his key initiatives is loosening the “debt brake” rule, raising the structural debt limit from 0.35% to 1.4% of GDP, as long as the debt ratio remains below 60%.

Canada: Retaliatory Tariffs on US Goods Worth C$155 Billion

Canada has officially imposed a 25% retaliatory tariff on US imports worth C$155 billion (US$107 billion), implemented in two phases. Prime Minister Justin Trudeau confirmed that these tariffs would remain in effect unless the US lifts its trade restrictions. In addition, Canada is considering non-tariff countermeasures, including export taxes on critical minerals used in US technology and energy industries.

Indonesia: Accelerating OECD Accession to Diversify Export Markets

Amid trade war uncertainties, Indonesia is expediting its accession process to become a full member of the Organisation for Economic Co-operation and Development (OECD). Coordinating Minister for Economic Affairs Airlangga Hartarto recently visited Paris to discuss the next steps in this process.

According to Bank Permata Chief Economist Josua Pardede, this move is part of Indonesia’s strategy to diversify its export markets and minimize the negative impact of the US-China trade war on the national economy.

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