China sees US trade wars as a joke, as it pushes key allies away

China is watching as the United States battles its own allies over trade. At the Group of Seven (G7) meeting in Canada, European Union foreign policy chief Kaja Kallas said the real winner of the ongoing tariff war is China.

“Who is laughing on the side or looking at the side is China,” Kallas said in an interview. Her statement came after US President Donald Trump threatened 200% tariffs on French and European wines, champagne, and other alcohol imports.

The move was retaliation for the EU’s plan to impose taxes on American whiskey exports, which itself was a response to Trump’s tariffs on steel and aluminum.

Kallas said the EU is prepared to fight back but wants to avoid economic fallout. “We keep a cool head, and of course, we are ready to act and defend our interest when we need to,” she said.

The impact was immediate. European alcohol stocks plummeted. LVMH, the parent company of Moët & Chandon and Veuve Clicquot, fell 2.2%, Rémy Cointreau SA lost 4.5%, and Pernod Ricard dropped 3.6%.

Meanwhile, the S&P 500 entered a correction, hitting its lowest level in six months as investors reacted to another inflation report and Trump’s latest tariff threats.

Trump’s trade wars are pushing allies away

Trump’s aggressive trade policies have put traditional US allies on edge. The European Union is now negotiating new trade deals with other partners, moving away from its reliance on the US.

Former US diplomat Wendy Cutler said the EU has already taken major steps toward diversifying trade. “The EU had concluded a big deal with the Mercosur countries. The EU and India are going to restart their negotiations,” she said.

Mercosur, a trade bloc of Argentina, Brazil, Paraguay, and Uruguay, signed a landmark trade deal with the EU in December. The agreement eliminates tariffs on over 90% of trade, giving European companies a €4 billion annual boost.

It also means South American goods will have better access to European markets than US or Japanese products. China is taking full advantage of the US-EU tensions.

David Roche, strategist at Quantum Strategy, said Europe has no choice but to explore alternatives. “The reality is, in the broadest sense of the word, Europe has to look for alternative markets to the US. China can help,” Roche said.

China strengthens its global trade position

China has been expanding trade partnerships while the US continues to isolate itself. It recently upgraded its free trade agreement with ASEAN, securing stronger economic ties in the region.

Cutler pointed out that China is actively offering economic stability to US trade partners. “If our partners can’t rely on us, guess what? These other countries, including China, look more attractive,” she said.

At the same time, the US is absent from key global trade agreements. The US is not part of the Regional Comprehensive Economic Partnership (RCEP) or the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Hong Kong has applied to join RCEP, and the UK recently joined CPTPP, further shifting global trade away from American influence.

With Europe looking to diversify its trade, there’s even speculation that the EU might consider joining CPTPP. Cutler believes this is a real possibility.

“I expect other countries to express interest … I don’t think it’s out of the question that perhaps the EU even thinks about joining CPTPP. It’s a new world out there,” she said.

Trump’s chaos strategy leaves allies frustrated

Trump’s approach to trade policy has been unpredictable. Stephen Olson, senior fellow at the ISEAS-Yusof Ishak Institute, said Trump deliberately keeps trade partners off balance.

“Trump thinks that he thrives under situations of chaos. So when everyone else in the world is running around with their hair set on fire, Trump thinks that works to his advantage,” Olson said.

For US allies, this makes long-term trade agreements impossible. Olson dismissed the idea that Trump’s trade war has a clear strategy.

“My advice would be … don’t bother,” he said, adding that Trump is not interested in “solid, concrete resolutions”. Instead, his goal is to keep trade partners under pressure, never letting them feel secure in negotiations.

Cryptopolitan Academy: Coming Soon - A New Way to Earn Passive Income with DeFi in 2025. Learn More