U.S. tariff war drives allies to reassess ties with Washington

The disruptive effects of U.S. tariffs are reverberating beyond global markets, beginning to unravel the alliance system that the U.S. has meticulously cultivated for decades.

While U.S. President Donald Trump's administration has long been skeptical of its alliances, the erratic nature of its tariff policies is now testing the limits of those relationships, with key U.S. allies taking a harder stance.

Japanese Prime Minister Shigeru Ishiba on Monday signaled a marked shift in Japan's approach to ongoing tariff negotiations with the U.S., stating that Japan would not make significant concessions and would not rush to finalize a deal.

"I'm not of the view that we should make big concessions for the sake of wrapping up negotiations quickly," Ishiba said during a session in Japan's parliament. This marks the country's most resolute response to U.S. tariffs to date, reflecting a broader hardening of Japan's position.

Just a week earlier, Ishiba had expressed a more conciliatory tone, emphasizing the need for swift negotiations and even suggesting an early phone call with Trump, coupled with hopes for a timely visit to the U.S. The abrupt shift in Japan's position underscores the growing strain between the two nations, particularly as Japan feels the economic weight of the U.S. tariffs.

Japan's pivot is part of a larger trend among U.S. allies. German Chancellor-designate Friedrich Merz warned on Saturday that the Trump administration's tariff policies were accelerating the timeline for the next global financial crisis. Though he advocated for a U.S.-European free trade agreement, it has drawn a hostile response from the U.S. president, who said the zero-for-zero tariff proposal wasn't sufficient and suggested Europe should offset them by buying U.S. energy.

Similarly, Canadian Prime Minister Mark Carney raised alarms last week, stating that Canada was implementing retaliatory tariffs against U.S. imports in response to "unreasonable" U.S. trade policies. Carney stated that these measures were designed "to cause maximum pain" to the U.S. economy.

Financial analysts are also adjusting their perspectives. The Financial Times reported on Sunday that major pension funds in Canada and Denmark are reassessing their U.S. investment strategies, as Trump's erratic tariff policies increasingly paint the U.S. economy as unstable.

A source at the Canada Pension Plan Investment Board (CPPIB) noted that it would be "incredibly difficult" for the board to commit new capital to U.S. private equity funds in the current geopolitical climate.

Alliance systems strain under tariff pressure

Ishiba's hardline stance represents a growing recognition that the Japan-U.S. alliance may not be sufficient to shield Japan from the economic consequences of Trump's tariffs. The U.S. has imposed a 25 percent tariff on Japanese automobiles, along with a 24 percent "reciprocal tariff," which has been temporarily delayed for 90 days. While the delay provides temporary relief, the overall tariff on Japanese car exports to the U.S. has soared from 2.5 percent to 27.5 percent, undermining Japan's competitive edge in the American market.

The impact on Japan's economy could be significant. The automobile sector is a vital pillar of Japan's economy, and forecasts suggest that the tariffs could lead to a GDP contraction of 0.2 percent to 0.3 percent for Japan, potentially affecting over 12 million people employed in industries tied to automobile production.

Germany, despite exporting only 4 percent of its total goods to the U.S., is also facing considerable economic fallout. According to a study by the IAB Institute for Employment Research on Friday, a flat tariff increase of 25 percent would reduce Germany's GDP by 1.2 percent one year after coming into effect. The International Monetary Fund (IMF) in January lowered Germany's economic growth forecast for 2025 to 0.3 percent.

Canada, which exports 76 percent of its total goods to the U.S., is particularly vulnerable. The imposition of tariffs on steel, aluminum and automobiles, coupled with new "fentanyl taxes," is expected to inflict severe damage across several industries.

French President Emmanuel Macron has also joined the chorus of leaders urging caution with regard to U.S. investments, highlighting the growing skepticism about the stability of U.S. economic policies under Trump.

Though the European Union has taken a restrained approach in its response, postponing direct retaliation against U.S. tariffs, EU officials have expressed that relations with Washington will never return to the pre-Trump status quo.