Who are the US allies most likely to be affected by Trump’s tariffs?

An introduction.

A country can afford to be generous if it believes that its economic might cannot be challenged. Additionally, ever since the Cold War, the US has continuously made concessions that put its national security and geopolitical goals ahead of its economic and trade interests. America reduced import duties, offered them foreign aid and technology transfers, cut advantageous trade agreements with nations it desired as strong allies, and even encouraged U.S. S. businesses to establish operations in their markets, all while participating in the massive geopolitical conflict to limit the Soviet threat. In order to accomplish foreign policy objectives, the Washington Consensus continued to recommend making techno-economic concessions to other countries even after the Soviet Union broke up.

As much as proponents of the previous Washington Consensus may wish it were still in use, those days are over. President-elect Trump’s “America First” agenda signals a shift toward a new philosophy, ending one-sided trade agreements, stepping down as the world policeman for nations unwilling to pay for their own defense, and refusing to ignore allied attacks on the United States. S. . the economy and the U. S. companies with the intention of preserving harmony in spite of the expenses. and the U’s key arrow. S. . Tariffs will be a tremor in the Trump administration. Washington’s “Massachusetts Avenue” internationalists will therefore have to either adopt the program or face marginalization.

Trump’s “America First” platform is a shift toward a new competitive realism theory.

Trump’s America First policy, based on his public remarks and previous presidential actions, will primarily target nations that take advantage of American investments (defense, pharmaceutical drug development, etc.); those that use our market openness to boost their economies (e.g. 3. operating long-term trade surpluses with the US); those that implement measures that harm the U. S. . the economy and the U. S. . businesses; and those that, instead of sticking by America, bow to China in order to obtain financial favors.

An innovative ranking system has been developed by the Center for Strategic and International Studies (CSIS) to evaluate U.S. S. . allies’ risks of facing tariffs under the Trump administration based on two factors: the defense budgets of the nations and their trade balance with the US. 1 The Information Technology and Innovation Foundation (ITIF) builds upon that analytical framework in this report using four indicators to create our own model for evaluating “Trump Risk.”.

1. . spending on defense.

2. . trade balance.

3. . A composite of anti-U measures. S. . policies pertaining to trade and technology.

4. readiness to withstand the technological and economic dominance of China.

The index that is produced includes 39 U. S. . allies. The nations with the highest and lowest risk of tariffs during the second Trump administration are depicted in Figure 1. A thorough explanation of the methodology and sources can be found in Appendix 1. For all 39 U, see Appendix 2. S. . rank-ordered scores for allies in the composite index and each subcategory.

The Background of “America Second”.

It’s worthwhile to quickly review a country’s previous foreign policy strategy before assessing its risk. Let’s call it “America Second.”. In an attempt to keep the Soviets in check, U. S. . Washington Consensus-led policymakers consistently placed U. S. . economic interests that are subservient to U. S. foreign policy objectives.

There were also critics of that strategy, even though the Washington Consensus favored it. Beginning in 1971, the U.S. S. . Washington, according to the Commission on Trade and Investment Policy, was placing too much emphasis on geopolitical factors at the expense of U.S. A. financial interests. 2 The panel cautioned that the U. S. U.S. manufacturing base was dwindling due to industry-targeting policies in other nations. S. . participation in those policies. As Japan pursued a mercantilist, export-led economic growth strategy (much like China does today), the trade disputes with Japan in the late 1970s and early 1980s may have been the quintessential instance of the United States prioritizing its geopolitical interests over its economic ones. Japan had put in place a number of measures intended to limit U.S. trade and tilt it in its favor. S. . access to Japanese markets, such as imposing import quotas, high tariffs, and burdensome standards, inspections, and regulations on U.S. S. . goods, restricting U. A. ownership of businesses in Japan; controlling the value of the yen; and closing U. S. . businesses that are nearly totally out of strategic markets, such as mainframe computers, semiconductors, and automobiles—all the while dumping essential products on the U.S. at lower prices. S. markets. . Therefore, to give one example, Japanese businesses had 60 percent of the U.S. market by 1984. A. semiconductor chip industry.

While trying to keep the Soviets in check, U. S. . Washington Consensus-led policymakers consistently placed U. S. economic interests that are beneath those of U. A. foreign policy objectives.

The U then increased its pressure. S. . business community, labor, and Congress for the White House to declare Japan an unfair trader under U.S. law and to file unfair trade complaints under the General Agreement on Tariffs and Trade. S. . law. But the U.S. S. The policy community debated the appropriate level of pressure on Japan. The Treasury Department, the Council of Economic Advisors, and national security agencies (such as the departments of State, Defense, and the National Security Council) were on one side, operating under the tenets of neoclassical economics. On the opposing side were the White House Office of the United States Trade Representative and the Commerce Department, both of which were motivated by a more realistic view of the economy. “Japan was our unsinkable aircraft carrier,” according to diplomacy and military leaders, and that U.S. S. . Geopolitical concerns ought to take precedence over trade and economic interests. 3 “We have to have those bases,” as then-assistant national security advisor Gaston Sigur emphasized. The bottom line is that. 4 The economists continued. Carter administration trade negotiator Alonzo McDonald advocated for a more activist approach against Japan, but he bemoaned the opposition from the Council of Economic Advisors and Treasury’s neoclassical economists (exactly the same kind of opposition they still mount today), saying the economists had “lost all touch with reality; it’s heart surgery handled by a biologist.”. “5.

Following the conclusion of the Cold War, the Clinton administration announced a new strategic direction that would place economic concerns on par with national security and geopolitical concerns. The Senate Foreign Relations Committee was informed by Clinton Secretary of State Warren Christopher that “economic growth ranked first among the three pillars of the new administration’s approach to foreign policy.”. 6 In the new conventional wisdom that emerged in the post-Cold War era, national economic interests would not be regarded as “secondary” or subordinate to national security interests, as noted by Andrew Bacevich in American Empire. 7. “Broadly construed,” national security would now encompass “both geopolitical and economic implications.”. President Clinton established the National Economic Council (NEC) as a counterpart to the National Security Council to help with this reordering of priorities. Robert Rubin, the NEC’s first chair before becoming Clinton’s Treasury secretary, noted that “the big change” with Clinton’s approach was that “the economic component of any problem gets on the table at the same time as other issues.”. Or, in the words of Clinton’s top trade negotiator Mickey Kantor, “International economics and trade have joined the foreign policy table.”. According to Bacevich, “Globalization swept aside barriers such as traditional distinctions between the nation’s economic well-being and its physical security.”. “10.

However, these issues were neglected during the brief economic boom of the second half of the 1990s. Then, September 11, 2001, decisively brought national security and geopolitical issues back to the forefront of the agenda. Once more, the US returned to prioritizing national security and geopolitical issues over economic ones. Former President George W. Bush wrote an autobiography titled Decision Points. Bush states that his top priority was to stop another terrorist attack.

Far too frequently, U. A. Because of the United States, policymakers continue to trade economic interest for global foreign policy concerns. A. The establishment believes that America’s economic standing is so stable that it can afford to make one concession after another.

The Obama administration operated similarly, with traditional national security officials in charge. For instance, President Obama promised quicker safety approval and closer technical cooperation for China’s proposed COMAC C909 commuter jet during his November 2009 visit to China to meet with President Jintao. 11 The reason behind the president’s pledge to assist China in developing commercial jetliners is unclear, but it is most likely that he made the concession in order to gain China’s support in negotiations with the stubborn regimes of Iran and North Korea, or possibly to lessen the impact of recent U.S. S. . sales of weapons to Taiwan.

However, China and other countries have prioritized gaining economic advantage, which they then convert into military advantage, while the United States has prioritized geopolitical concerns in such agreements. In fact, in a speech titled “Let the Large Aircraft of China Fly in the Blue Sky,” months before the United States agreed to offer China technical assistance in developing a commercial jetliner, Chinese Prime Minister Win Jinbao outlined China’s vision for creating and manufacturing its own commercial jets in direct competition with Boeing, despite the fact that China could easily afford to purchase all the Boeing jets it required and more with its $200 billion annual trade surplus. 12 Boeing is currently having difficulties, while China’s COMAC is rising.

This is still the same story after fifty years. Too frequently, U. S. Politicians still trade with the U.S. A. global foreign policy issues due to economic interest because, like the wealthy who can afford to be generous, the U.S. A. The establishment believes that America’s economic standing is so stable that it can afford to make one concession after another. But as ITIF’s Hamilton Index of Advanced Industry Competitiveness has shown, the cumulative effect of frequently sacrificing economic interests for geopolitical ones has led to long-term structural economic decline. 13 Ironically, America’s relative military security will only get worse over time as a result of this.

USA First.

The vision of past administrations has never been embraced by President-elect Trump. Trump did, in fact, say this in his first policy address as president in April 2016.

The time has come to revitalize America’s foreign policy. We must bring in fresh perspectives and voices; it’s time to do so. The path I’ll lay out today will also bring us full circle to a timeless idea. The security of the United States and the interests of its citizens will always come first in my foreign policy. First, of course. It must be. That will serve as the basis for all of my decisions. 14.

It turns out that while not all of Trump’s decisions during his first term were based on this, some were. The U.S. government and many members of his foreign policy establishment, particularly Treasury Secretary Steve Mnuchin, were committed to the old system and actively opposed Trump’s initiatives. S. . The full extent of the foreign policy establishment.

Although the “globalists” had a significant impact during the first Trump administration, there is reason to think that they will become increasingly rare during Trump II. For instance, Senator Marco Rubio (R-FL), who is running for secretary of state, is a true China hawk. Among other things, the Trump/Republican platform for 2024 pledged to “Become the Manufacturing Superpower” and “Rebalance Our Trade.”. 15 Trump has also indicated that he plans to take tough measures against China, and he anticipates that our allies will follow suit. Additionally, he has long lamented that allies underinvest in national defense, thereby taking advantage of America.

scores for the Trump Risk Index.

Therefore, considering that Trump intends to raise U. S. . Though it’s unclear exactly what the criteria will be when Trump determines whether nations are “with us” or “against us,” there is good reason to believe that four main areas will be front and center: defense spending; trade fairness, including trade balance and unfair trade practices; willingness to stand with the United States against China; and other factors and policies that harm U.S. economic interests—and assuming his plans will include technologically advanced industries. S. . interests, including discriminating against U.S. through antitrust laws. S. technology firms, upholding cross-border data restrictions, and having a lax intellectual property regime. The president is more likely to target countries that he perceives as being “against” America with tariffs and other forms of retaliation.

In order to rank countries according to their likelihood of facing tariffs or other retaliatory actions during the second Trump administration, ITIF has employed these four indicators. For a description of the sources and methodology, refer to Appendix 1. ().

The weighted scores of each of the four composite indicators in ITIF’s Trump Risk Index, as well as the overall scores of each nation, are shown in Table 1. If everything else is equal, the likelihood that President Trump will act against a country increases with a lower score. Conversely, nations with high scores are in a better position.

nation.

GDP versus military spending.

GDP / Trade Balance.

China is being tough.

Anti-U. A. Regulations.

Final Score.

Mexico.

-1.91.

-2 Point 7.

-0point.

0point 34.

-4 minus 12.

Thailand.

-1.14.

-point 89.

-0.48.

-0.47. .

-3 points to 98.

Slovenia.

-0-0.97.

-1.07.

-0point.

Point Zero.

-2°48.

Italy.

-1 degree 69.

-0Point 37.

-0°48.

0.11.

-2 points to 42.

Canada.

-0.86.

-0point.

-0point.

-0.11.

-1 point, 98.

Zealand.

-1.07.

0 point 25.

-1 degree 37.

0.27.

-2.92.

Hungary.

0.16.

-0.65. .

-1.37.

At 0:01.

-78.

Turkey. .

0 point 13.

0 Point 37.

-1 point 37.

-0.71.

-1point 58.

Slovakia. .

0 point01.

-1 point 32.

-0°48.

0point 23.

1 point 57.

Luxembourg.

-0.97.

0:97.

-1 point 37. .

-0 Point 15.

-1 Point 53.

Spain.

-0point 99.

0point 43.

-0.48.

-30 degrees.

-1point 34.

Portugal.

-0.61.

-0.03.

-0.48.

0.05.

-1 point eight.

Montenegro.

At 0:03.

0point 39.

-1 point 37. .

0Point 16.

-0.78.

Albania.

0point-05.

0:52.

-1 point 37.

0.09.

-0.71.

Italy.

-0 points 70.

-0 point 16.

0.41.

-0Point 27.

-0.71.

Germany.

0point 17.

-0.14.

-0.48.

-0.25.

-0 Point 69.

Philippines.

-1 point03.

0 point 13.

0.41.

0 point 9.

-0 degrees forty.

Bulgaria.

0.26.

0 point 8.

-0.48.

-0.14.

-0point 29.

Croatia.

-0.26.

0.43.

-0.48.

0.15.

-0.16.

United Kingdom.

0.46.

0.48.

-0.48.

-0.40.

0.06.

Norway.

0.28.

0.33.

-0.48.

0.00.

0.13.

South Korea.

1.12.

-0.41.

-0.48.

-0.07.

0.16.

France.

0.09.

0.27.

0.41.

-0.56.

0.20.

North Macedonia.

0.31.

0.00.

-0.48.

0.48.

0.32.

Japan.

-1.10.

-0.09.

1.30.

0.25.

0.36.

Sweden.

0.20.

-0.09.

0.41.

0.08.

0.61.

Belgium.

-0.96.

1.11.

0.41.

0.06.

0.63.

Romania.

0.35.

0.17.

0.41.

0.00.

0.94.

Finland.

0.57.

-0.05.

0.41.

0.22.

1.16.

Greece.

1.50.

0.36.

-0.48.

-0.15.

1.22.

Taiwan.

0.24.

-1.44.

2.20.

0.34.

1.33.

Denmark.

0.52.

-0.06.

1.30.

-0.34.

1.42.

Czechia.

0.14.

0.14.

1.30.

0.06.

1.65.

Netherlands.

0.08.

1.49.

0.41.

0.12.

2.09.

Australia.

-0.10.

0.69.

2.20.

0.10.

2.88.

Latvia.

1.59.

0.66.

0.41.

0.22.

2.88.

Poland.

2.93.

0.31.

0.41.

-0.10.

3.56.

Estonia.

1.98.

0.11.

1.30.

0.21.

3.60.

Lithuania.

1.18.

0.69.

2.20.

0.16.

4.22.

The five countries that are most at risk in ITIF’s index are Mexico, Thailand, Slovenia, Austria, and Canada in that order—with Mexico and Thailand in a class by themselves. (See figure 1 and figure 2. ) All five are below the group average in their defense spending as a share of GDP (figure 3). All run trade deficits with the United States, Mexico and Thailand having the biggest (figure 4). All of them, in ITIF’s estimation of the Trump administration’s likely view, are “soft” on China and resist fully allying themselves with the United States to resist China’s rising military, foreign policy, and techno-economic hegemony (figure 5). And on an array of mercantilist policies that proposed or enacted affecting technologically advanced industries, Canada and Thailand are below average, but the other three are not without some problems (figure 6). Other nations ranking in the top 10 overall in terms of their risk of facing tariffs or other retaliation from the Trump administration are New Zealand, Hungary, Turkey, Slovakia, and Luxembourg.

At the other end of the spectrum, the five countries that are farthest into the “safer zone” are Lithuania, Estonia, Poland, Latvia, and Australia. All have above-average military spending, with the exception of Australia, which is close to the average. All run trade deficits with the United States. All have made some efforts to push back against Chinese predation. And all except Poland are above average on a range of protectionist measures against the United States. Other top 10 nations are Netherlands, Czechia, Denmark, Taiwan, and Greece.

What Should Nations Do?

So far, Trump has not proved that he will be fully consistent in his words and actions. But it appears to be a safe bet that nations should take Trump seriously. The natural response for many countries targeted by Trump will be to protest and insist that they will not cave into this kind of untoward pressure. But while that might be good from the perspective of domestic politics, it is likely to be bad domestic policy.

For those nations whose scores are low, put them at greater risk of facing tariffs or other retaliatory measures from the Trump administration, there are steps all could take to show the president-elect they intend to be better allies to America. To start with, they can commit to raising their defense spending if it is low, starting with actual increases in appropriations for 2025. There is in fact no reason for them to free ride on U. S. defense spending. It is selfish and unfair, and it is time for it to stop.

Second, they can signal that they will stop siding with China or positioning themselves on the fence instead of standing up for freedom and democracy. That would entail, among other steps, passing laws limiting inward foreign investment from China, joining with the United States and its core allies in sharing commercial counterintelligence, standing up to China’s wolf-warrior diplomacy and other bullying, and joining America on export controls. Of course, this will be hard to do for some nations that are accustomed to believing they can or should try to “have their cake and eat it too”—i. e. , choosing not to stand up to rampant Chinese techno-economic mercantilism in the hope that they will benefit from having some level of access to China’s huge domestic market. But again, such action is selfish and short-sighted, and to the extent pressure from the Trump administration makes it easy for those nations’ domestic politics to come around to a tougher China position, Trump is doing them a favor.

The natural response for many countries targeted by Trump will be to protest and insist that they will not cave into this kind of untoward pressure. But while that might be good from the perspective of domestic politics, it is likely to be bad domestic policy.

Third, and most difficult, nations can immediately shelve proposals or repeal existing rules designed to harm American companies, such as digital services taxes and restrictive antitrust laws modeled after the EU’s Digital Markets Act; they can crack down on IP and software theft; they can boost pharmaceutical reimbursement rates; and they can embrace the free flow of data across their national borders. Nations that have put in place these policies and practices clearly have done so because they believe they benefit will economically. Why not unfairly tax U. S. digital companies? That is free money for their national treasuries. 16 Why not impose onerous antitrust laws on American companies? That will give their weaker domestic companies a leg up. Why not avoid paying very much for drugs despite the fact that those revenues support new drug discovery? 17 It’s easier to free ride. You get the picture. Nations can fix these problems with the stroke of a pen. It simply requires political will.

The fourth step—reducing nations’ trade deficits with the United States—is harder, in part because trade balances are the product of many factors, and the private sector plays a key role. But even here, there are some easy things nations should do. First, countries can ensure that their tariffs on U. S. imports are broadly reciprocal and equivalent to U. S. tariffs on their exports. They can encourage their companies to buy more from American companies and less from Chinese companies. To the extent that nations subsidize exports, they can cease doing so. And to the extent they manipulate their currencies for competitive advantage, they can stop.

None of this is to say that the United States can blame other nations for all of its trade deficit. The unwillingness of past administrations, pressured by the Treasury Department and Wall Street, to keep a strong dollar has resulted in a much larger trade deficit than would otherwise be the case. And the lack of a strategic industrial policy has allowed a hollowing out of U. S. production, fewer exports, and more imports. But at the end of the day, President-elect Trump and his team no doubt will be looking at the ways foreign nations contribute to these problems. And foreign nations should take his concerns seriously if they want to avoid being targets, because we are entering a new era of competitive realism. 18.

Appendix 1: Methodology.

ITIF’s model covers the same 37 allied nations that CSIS included in its analysis. In addition, we added Austria and Mexico. To estimate a Trump risk score, we used the two main indicators from the CSIS report—military spending as a share of GDP and trade deficit. In addition, ITIF included two other indicators: toughness on China and other anti-U. S. taxes and policies that amount to trade barriers.

These four main indicators are comprised of 11 variables:.

1. Military expenditures as a share of GDP;.

2. Trade balance as a share of GDP;.

3. Other taxes and policies acting as trade barriers:.

a. The 2024 USTR Watch List (Priority Watch List = 0, Watch List = 1, Not Listed = 2;.

b. The extent to which nations have enacted pharmaceutical price controls (Low = 3, Moderate = 2, High = 1);.

c. 2018 GDP per capita adjusted prescription price levels compared to the United States;.

d. 2017 rates of unlicensed software installation;.

e. 2017 commercial value of unlicensed software ($M);.

f. The number of national data regulations countries have enacted;.

g. Antitrust laws similar to the EU’s Digital Markets Act that countries have proposed or enacted (Yes = 0, No = 1);.

h. Digital services taxes (Yes = 0, No = 1); and.

4. Toughness on China (5 = Tough, 1 = Weak).

The data and information sources for those variables included the following:.

▪ The CSIS analysis. 19.

▪ The World Bank’s World Development Indicators. 20.

▪ The U. S. Trade Representative’s 2024 Special 301 Report. 21.

▪ ITIF’s 2016 report, “Contributors and Detractors: Ranking Countries’ Impact on Global Innovation. ” 22.

▪ ITIF’s 2023 report, “The Hidden Toll of Drug Price Controls: Fewer New Treatments and Higher Medical Costs for the World. ” 23.

▪ The 2018 BSA Global Software Survey. 24.

▪ ITIF’s 2021 report, “How Barriers to Cross-Border Data Flows Are Spreading Globally, What They Cost, and How to Address Them. ” 25.

▪ VATCal’s global tracker of digital services taxes. 26.

We used various official and secondary sources to determine whether nations have enacted or are considering antitrust laws like the EU’s Digital Markets Act. And we used various primary and secondary sources to assess nations’ policies towards China, but we ultimately assigned scores for this variable using our own qualitative assessments.

The original values for the following variables were then inverted to make scores positive or negative according to how the Trump administration will likely view them: 2018 GDP per capita adjusted prescription price levels compared to the United States; 2017 rates of unlicensed software installation; 2017 commercial value of unlicensed software; and number of national data regulation.

The values for the 11 variables were then standardized to obtain a comparable z-score. Once standardized, the 11 variables were separated into the four categories in the Trump Risk Score table: military expenditures as a share of GDP, trade balance as a share of GDP, toughness on China, and other trade-barrier factors. The first three categories capture military expenditures as a share of GDP, trade balance as a share of GDP, and how tough a nation is on China, respectively. The other trade-barrier factors category is the average of the remaining 8 variables’ z-score. Due to its 0 and 1 metric, the negative z-scores for the USTR 301 Watchlist were divided by 2 to prevent them from skewing the composite “other factors” score negatively. Similarly, the positive z-scores for DMA laws were also divided by 2 to prevent skewing the composite “other factors” score positively.

The total score in the resulting Trump Risk Index was calculated by summing the weighted z-scores of the four categories. Military expenditures as a share of GDP have a weight of 1, trade balance as a share of GDP have a weight of 0.75, toughness on China has a weight of 1, and other trade-barrier factors have a weight of 0.75. The nations with the highest resulting scores are less at risk than those with lower scores.

Appendix 2: Rank-Ordered Composite and Subcategory Scores.