TheMarketForIdeas

International trade relations between the four biggest economic powers – the European Union, the United States, Japan, and China – have changed significantly in recent years, as an escalation of tariffs turned into trade war confrontations, particularly those initiated by the US. The EU, Japan, and China, three of the US’s major trading partners, all had to decide how to respond. China chose to retaliate against the US, the EU responded through calibrated countermeasures that matched the value of the US tariffs, and Japan relied on negotiation to reach an agreement with the US. Although the three economies faced the same external pressure, their responses differed according to their trade dependencies and strategic interests.

US tariffs and trade dependence

At the beginning of 2018, the US imposed a series of tariffs on its key trading partners. These tariffs targeted specific sectors, such as steel and aluminium, automobiles, and electronics. The increasing economic confrontations raised concerns about stability and the importance of international trade and multilateral institutions. The impact of these tariffs differed across countries because their economies have different levels of dependence on international trade. The EU is highly dependent on international trade, with merchandise trade representing approximately 76.9% of GDP, while China and Japan have a moderate reliance on trade due to their strong export-oriented industries. In contrast, the US has the lowest trade dependence, indicating a large domestic market, where trade accounts for a smaller share of GDP. These differences in economic structures help explain why countries adopted different responses to the US tariffs.

US tariffs on China

The US-China trade war represented the most significant tariff confrontation among the cases examined. In 2018, during President Trump’s first term, the US imposed tariffs on Chinese imports, based on claims that China was engaging in unfair trade practices. The dispute was also related to forced technology transfer and intellectual property concerns. In March 2018, the US imposed tariffs on steel and aluminium imported from China, to which China responded with tariffs on US aluminium and a range of food products, such as meat, fruit, or wine. The confrontation escalated when the US introduced additional 25% tariffs on $50 billion worth of Chinese imports. China retaliated with 25% tariffs on $50 billion worth of US imports. By September 2018, the situation escalated even more as the US imposed tariffs on another $200 billion worth of Chinese imports, while China responded with tariffs on an additional $60 billion of US goods. Further tariff increases were introduced in 2019, with both countries continuing to retaliate against each other.

In 2020, the US and China signed the Phase One agreement. China committed to purchase an additional $200 billion of US goods in the next two years, while the US agreed to reduce some tariffs. However, China purchased barely 58% of what it had agreed to buy, according to data from the Peterson Institute for International Economics, while the US maintained many of the tariffs in place. The COVID-19 pandemic, supply chain disruptions, and continuing political tensions contributed to the underperformance of the agreement.

By 2025, tension had increased again. The US introduced new tariffs on Chinese goods, while China retaliated with tariffs on products including coal, natural gas, crude oil, and agricultural machinery. China’s response therefore combined direct retaliation with long-term economic adaptation. The country reduced its reliance on US imports and shifted toward other trading partners, including RCEP countries. At the same time, China continued to pursue technological self-sufficiency and strengthen its domestic market. China’s response can be characterized primarily as retaliatory, combined with policies designed to reduce its vulnerability to future US trade restrictions.

US tariffs on the European Union

The EU adopted a different approach from China. In June 2018, the US under President Trump imposed tariffs on $7 billion worth of EU steel and aluminium exports. As a countermeasure, the EU implemented tariffs worth $3.1 billion on US exports, while another $4 billion in measures was postponed. The EU therefore chose to respond through rebalancing measures, matching the economic impact of the US tariffs rather than further escalating the conflict. In 2021, the US and the EU negotiated a tariff-based quota agreement, and the EU suspended the remaining measures to allow parties to find long-term solutions. However, tensions increased again in 2025 after the US announced new tariffs of 25% on EU goods worth $28.6 billion. The EU then prepared a two-step response: the reinforcement of previously suspended countermeasures worth $8.8 billion and the preparation of additional measures worth $19.8 billion. The total value of the EU’s countermeasures therefore matched the $28.6 billion worth of goods targeted by the US tariffs.

The EU’s response demonstrates a combination of economic protection and diplomacy. Before implementing measures, the EU used consultations and justified its actions as safeguard measures under WTO rules. This strengthened its position as an advocate of multilateralism and international law. Despite the US’s unpredictable moves, the EU applied strategic patience and continued to leave the door open for negotiations.

US tariffs on Japan

Japan adopted a less confrontational strategy. At the end of 2018, the US and Japan announced that trade negotiations would begin to address trade imbalances. In 2019, the formal negotiations began, targeting agricultural, digital, and industrial goods. A trade agreement was signed between the two countries, reducing tariffs on agricultural products and establishing trade rules for digital goods. The agreement entered into force in 2020, reducing or eliminating tariffs on many goods. In 2022, the US removed tariffs on Japanese steel imports, reducing tensions in the steel sector. However, trade tensions renewed in 2025, following the introduction of new US tariffs. Rather than responding primarily through direct retaliation, Japan introduced an emergency economic package designed to reduce the impact of the tariffs on affected industries. The package included financial support and subsidies for the industries affected by the tariffs.

The interaction between the US and Japan demonstrated that Japan primarily relied on negotiations and complemented its diplomatic approach with domestic support for affected industries. When tariffs created stronger economic pressure, Japan used domestic support measures for affected industries and maintained consultations with the affected companies. Communication was kept open because negotiations had previously contributed to the resolution of trade disputes.

Comparative Discussion

The three cases demonstrate that the same external pressure, namely the implementation of US tariffs, can generate different responses depending on national economic interests and trade strategies. China adopted the most confrontational approach, responding directly to US tariffs with its own tariffs. However, China’s strategy went beyond retaliation. The country also attempted to reduce its dependence on the US market by strengthening domestic consumption, developing alternative trading relationships, and pursuing technological self-sufficiency. The EU adopted a more controlled response. Rather than entering further tariff escalation, it used rebalancing measures that matched the value of US tariffs. At the same time, the EU emphasized negotiations, WTO rules, and multilateralism. Its response combined protection of European economic interests with diplomatic efforts. Japan relied primarily on negotiation. Instead of responding to the US tariffs primarily with equivalent tariffs, Japan used trade negotiations to reach agreements and reduce barriers. When new tariffs created pressure in 2025, Japan complemented its diplomatic strategy with financial support and subsidies for affected industries. The main differences between the three responses are the balance between retaliation, diplomacy, and domestic adaptation. China emphasized retaliation and economic self-reliance, the EU combined countermeasures with diplomacy, while Japan prioritized negotiation and domestic support.

Conclusion

The case study of the US tariff confrontation with the EU, China, and Japan highlights the complexity of the global trade dynamics and the different strategic responses adopted by these major economic powers. China chose a retaliatory approach, escalating tariffs and developing domestic policies to reduce its reliance on the US. The EU combined the legal actions provided by the WTO with strategic countermeasures while trying to defend the nation’s economic interests. Japan followed a diplomatic path, avoiding direct confrontations in favour of negotiations. The differences between the three responses demonstrate the importance of trade dependencies, economic structures, and national interests. Although China, the EU, and Japan experienced the same external pressure from US tariffs, they did not respond in the same way. A country’s response to trade conflicts depends not only on the severity of the tariffs but also on its economic structure and strategic position in the international trading system.

Photo source: PxHere.com.

Recommended readings:

Alessandria, G., Khan, S. Y., Khederlarian, A., Ruhl, K. J., & Steinberg, J. B. (2025). Trade war and peace: U.S.-China trade and tariff risk from 2015–2050. Journal of International Economics, 155, 104066. https://doi.org/10.1016/j.jinteco.2025.104066

Bernis, A. (2025). Despite the pause, America’s tariffs are the worst ever trade shock. The Economist. https://www.economist.com/finance-and-economics/2025/04/09/despite-the-pause-americas-tariffs-are-the-worst-ever-trade-shock

Bown, C. P. (2020). US-China phase one tracker: China’s purchases of US goods. Peterson Institute for International Economics. https://www.piie.com/research/piie-charts/us-china-phase-one-tracker-chinas-purchases-us-goods

Bown, C. P. (2022). China bought none of the extra $200 billion of US exports in Trump’s trade deal. Peterson Institute for International Economics. https://www.piie.com/blogs/realtime-economics/2022/china-bought-none-extra-200-billion-us-exports-trumps-trade-deal

Bown, C. P. (2025). US-China trade war tariffs: An up-to-date chart. Peterson Institute for International Economics. https://www.piie.com/research/piie-charts/2019/us-china-trade-war-tariffs-date-chart

Bown, C. P., & Reynolds, K. M. (2015). Trade flows and trade disputes. The Review of International Organizations, 10(2), 145–177. https://doi.org/10.1007/s11558-014-9208-2

Demertzis, M., & Fredriksson, G. (2018). The EU response to US trade tariffs. Intereconomics, 53(5), 260–268. https://doi.org/10.1007/s10272-018-0763-2

European Commission. (2022). EU trade relations with United States. https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/united-states_en

European Commission. (2025a). Commission responds to unjustified US steel and aluminium tariffs with countermeasures. https://ec.europa.eu/commission/presscorner/detail/en/ip_25_740

European Commission. (2025b). EU countermeasures on US steel and aluminium tariffs explained. https://ec.europa.eu/commission/presscorner/detail/en/qanda_25_750

Frangeul-Alves, A., & Weber, G. (2024). America votes 2024: The transatlantic impact—The United States’ EU policy after 2024. German Marshall Fund of the United States. https://www.gmfus.org/sites/default/files/2024-07/The%20United%20States%E2%80%99%20EU%20Policy%20After%202024%20.pdf

Freund, C., & Ornelas, E. (2010). Regional trade agreements. Annual Review of Economics, 2(1), 139–166. https://doi.org/10.1146/annurev.economics.102308.124455

Frost, E. L. (2016). US-Japan trade: The broader context. Peterson Institute for International Economics. https://www.piie.com/commentary/testimonies/us-japan-trade-broader-context

Itakura, K. (2020). Evaluating the impact of the US–China trade war. Asian Economic Policy Review, 15(1), 77–93. https://doi.org/10.1111/aepr.12286

Kwan, C. H. (2020). The China–US trade war: Deep-rooted causes, shifting focus and uncertain prospects. Asian Economic Policy Review, 15(1), 55–72. https://doi.org/10.1111/aepr.12284

Maggi, G. (1999). The role of multilateral institutions in international trade cooperation. American Economic Review, 89(1), 190–214. https://doi.org/10.1257/aer.89.1.190

Office of the United States Trade Representative. (2019). U.S.-Japan trade agreement negotiations. https://ustr.gov/countries-regions/japan-korea-apec/japan/us-japan-trade-agreement-negotiations

Önsel, Ș., Ülengin, F., Ulusoy, G., Aktaș, E., Kabak, Ö., & Topcu, Y. İ. (2008). A new perspective on the competitiveness of nations. Socio-Economic Planning Sciences, 42(4), 221–246. https://doi.org/10.1016/j.seps.2007.11.001

Sala-i-Martin, X., Blanke, J., Drzeniek Hanouz, M., Geiger, T., Mia, I., & Paua, F. (2007). The global competitiveness index: Measuring the productive potential of nations. https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&doi=e44d29c10e6d39a981a5aad71829f4255a84883c

U.S. Congress. (2025). U.S.-Japan trade agreements and negotiations. Congress.gov. https://www.congress.gov/crs-product/IF11120

World Bank. (2025). Merchandise trade (% of GDP). World Bank Open Data. https://data.worldbank.org/indicator/NE.TRD.GNFS.ZS