February 18, 2025Calculating...

Less predictable, less secure: international business and President Trump’s economic nationalism

Torys’ Canadian and New York offices will be providing regular briefs on the legal ramifications of the tariffs and other cross-border policy developments on the horizon.

In the four weeks since taking office on January 20, President Trump has shifted United States foreign and economic policy away from a rules-based international legal order, placing greater emphasis on American economic nationalism instead. This marks a notable change in what had been relatively consistent United States policy for decades. It encourages “tit-for-tat” retaliation by other countries. It will make the international business environment less predictable and less secure. Companies will want to scrutinize their foreign trade and investment decisions more than they have been used to doing, and it will be increasingly important to structure foreign holdings so that companies can avail themselves of private rights of action against governments.

Shift away from free markets and economic integration

Since January 20, President Trump has made a flurry of tariff announcements. He has:

  • Levied 10% tariffs on China.
  • Threatened to place 25% tariffs on Canada and Mexico—currently paused for 30 days, until March 4—purportedly on the basis of national emergencies related to immigration and fentanyl.
  • Announced 25% tariffs on all steel and aluminum products, to take effect on March 12 (Canada is the United States’ top supplier of both products).
  • Ordered various government departments to investigate “unfair and unbalanced” trade deficits and consider imposing a “global supplemental tariff” on all trade, anti-dumping measures, amending trade agreements to favour U.S. manufacturers, and creating an “external revenue service” to collect tariff revenue. Reports and recommendations are due by April 1.
  • Ordered his staff to investigate and report back 180 days from February 13 on country-specific “reciprocal tariffs” to address what the United States considers unfair trade relations. Examples cited include higher Brazilian tariffs on ethanol, India’s higher tariffs on agricultural goods and motorcycles, the European Union’s restrictions on shellfish exports from 48 states and higher tariffs on imported cars, the European Union’s value added taxes, and Canada’s and France’s digital service taxes. Howard Lutnick, Commerce Secretary nominee, indicated that his team would complete its review by April 1.

These announcements pivot American foreign and economic policy away from championing free markets and economic integration, preferring a more overt tone of economic nationalism.

Shift away from the rule of law

President Trump’s approach shifts the United States away from emphasizing a rules-based international legal order. These tariff announcements are arguably inconsistent with the United States’ commitments under various instruments of international economic law. But tariffs are not the only measures enacted that undermine the rule of law.

For example, on February 10, President Trump signed an executive order pausing enforcement of the Foreign Corrupt Practices Act (FCPA). The United States previously championed the Organization for Economic Cooperation and Development Anti-Bribery Convention, which entered into force in 1999, and requires 46 signatory countries to criminalize bribery and corruption of foreign public officials worldwide. Its goal is to address the “supply side” of bribery worldwide by relying on both “home country” as well as “host country” legal systems to prosecute bribery, and to create a level playing field in the international business environment among signatories.

This announcement marks an overt turn away from promotion of responsible business practices and the rule of law.

“America first” economic nationalism encourages similar attitudes elsewhere

In response to tariff threats over the last several weeks, various countries have indicated their intent to retaliate. Canada announced its intent, at first, to retaliate in kind by imposing responding tariffs, dollar for dollar. But retaliation may also be asymmetric. China responded to U.S. tariffs with its own tariffs, as well as an anti-monopoly investigation into Google and imposing export controls on certain critical minerals1. The European Union has indicated that all options are on the table if it is the target of tariffs, including taxing trade in services, revoking protection of intellectual property rights, blocking foreign direct investment and/or restricting market access in financial services2.

American economic nationalism may encourage similar asymmetric and unilateral action by other countries. For example, following President Trump’s decision to defund USAID and stop flows of aid to South Africa, the South African Minister of Mineral and Petroleum Resources called on South Africa and other African nations to suspend all mineral exports to the United States3—i.e., South Africa may use its own trade restrictions to respond to the United States’ non-trade measures. With core interests seemingly being renegotiated by the United States around the world, the international system may become less predictable and stable for business.

What companies can do to navigate this uncertainty

While it may be difficult to fully insulate commercial operations from increasing political risk, companies will want to consider mechanisms to minimize the impact of this growing uncertainty on their business operations. That may include scrutinizing existing and new trade and investment decisions for political risk. Canada’s other free trade relationships, including with the European Union and CPTPP member countries, may become more important to businesses.

Companies will also want to ensure that their foreign investments are structured to benefit from investment treaty protection, in the event that foreign governments take action impacting their investments abroad. Canada has in place dozens of bilateral and multilateral agreements providing for protection of Canadian investors under international investment law. Where Canada has no treaty with a given country, companies should consider options to structure ownership of an investment through a subsidiary in a third country that benefits from treaty protection.

These treaties provide for the ability to sue host governments in arbitration for their breaches of international investment protections and damages caused to foreign investors. This may be some of the only direct action that companies may be positioned to take in relation to unfair measures imposed on them abroad.

 
Read more Tariffs and trade briefs.


To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

For permission to republish this or any other publication, contact Janelle Weed.

© 2025 by Torys LLP.

All rights reserved.
 

Subscribe and stay informed

Stay in the know. Get the latest commentary, updates and insights for business from Torys.

Subscribe Now