WTO chief says don’t ‘hyperventilate’ over Trump tariff threats

The world’s most visible champion of free trade offered some advice at Davos, where rising global protectionism was on everyone’s mind this week.

“Please let’s not hyperventilate,” World Trade Organisation Director-General Ngozi Okonjo-Iweala said Thursday. “Could we chill?”

That was shortly before Donald Trump gave a closely watched video address to the World Economic Forum’s annual confab in the Swiss alps for the rich, the well-connected and the powerful.

Bluffs or not, Trump’s warnings have financial markets on edge, governments fine-tuning retaliation plans and companies worrying they’ll be casualties in wider trade wars. The nervous calm held, even after the US president repeated his threats to slap tariffs on partners from Europe to China and Canada.

Through the week, investors mostly focused what Trump did on trade and less on what he said, cautiously optimistic after his first days brought only threats, not the sweeping new levies he’d promised on the campaign trail.

The dollar – which typically gains from expectations of actual tariffs – traded sideways in Trump’s first week. The offshore yuan even pushed modestly higher against the dollar as traders concluded a 10% tariff on Chinese exports was a far cry from the 60% previously floated.

Wall Street’s favorite fear gauge also remained subdued, a sign investors are in wait-and-see rather than fight-or-flight mode. Yields on 10-year Treasuries nudged lower, adding to a sense of relative calm.

China stock investors, though, are bracing for higher volatility with Chinese equities giving up some of their recent gains after Trump said he is still considering imposing 10% tariffs on Chinese goods. The currencies of Canada and Mexico also suffered after he threatened new levies on those countries.

Most investors are still bracing for more action and thus higher volatility later.

Economists and watchers of Trump’s previous trade wars say there’s likely to be plenty.

“I don’t think we should be interpreting the fact that he didn’t make any moves on tariffs in his first few days as a sign that he’s changed his mind or changed his thinking,” said Michael Strain, director of economic policy studies at the American Enterprise Institute. “It’s not just premature, it’s incorrect.”

Major Wall Street banks still include substantial tariff hikes in their base-case forecasts.

If Trump makes good on his threats of levies of 25% on Mexico and Canada, 10% on China and assuming a similar rate for Europe, the average US tariff rate would rise to more than 10%, from about 3% now, according to Bloomberg Economics.

“That would result in a great reshuffling of trade flows, a material hit to activity in Canada and Mexico, and a blow to growth and boost to inflation in the US,” said Maeva Cousin, BE’s chief trade and climate economist.

For the moment, US stocks looked set to end the week higher, as some US multinationals indicated optimism about 2025, at least if the outlook doesn’t include another tariff storm.

‘Wait-and-see’

Pittsburgh-based Alcoa Corp, the largest US aluminium producer, said it expects this year to see the highest aluminum demand in history, with global consumption to be up by about 2%. That doesn’t reflect the new levies on Canada that Trump threatened this week.

“A 25% tariff on aluminum products coming in from Canada has a $1.5 billion to $2 billion negative impact on consumers,” Chief Executive Officer William Oplinger said in an interview. “That will have a quieting effect on demand we believe in the US.”

Volkswagen AG, Europe’s largest carmaker, with major production in Mexico, said Tuesday it was “concerned about the harmful economic impact that proposed tariffs by the US administration will have on American consumers and the international automotive industry.”

Some chief executives adopted a wait-and-see approach, expressing hope that early confusion – or chaos – will dissipate, and Trump’s pro-business instincts will win out and companies will benefit.

“Let’s give it a few weeks,” Polestar Automotive Holding UK CEO Michael Lohscheller said in an interview in London on Wednesday. “While everybody is super-concerned about what’s happening in the US, the US are business people. Trump is a business person. I think he will do what’s right for business, and that generally helps consumer confidence.”

Cooler heads

Among the least relaxed recipients of the US president’s latest tariff barbs were his counterparts in foreign capitals.

Mexico’s President Claudia Sheinbaum called for cool heads to prevail after Trump’s vow to impose hefty tariffs on the biggest US trading partner sent the country’s currency tumbling.

On the northern border, Canadian Prime Minister Justin Trudeau indicated that his country is poised to retaliate if necessary against American products after Trump called Canada a “very bad abuser.”

Officials in Europe sounded ready to negotiate, with some seeing Trump as transactional on trade while others emphasized shared interests.

“Let’s focus on how we strengthen this transatlantic relationship and avoid any misunderstanding,” Spanish Prime Minister Pedro Sanchez said on Bloomberg TV in Davos.

In Asia, South Korea’s government is seeking talks with Trump to discuss cooperation as soon as possible, and India is evaluating options ranging from a trade deal to cutting tariffs and importing more goods from the US.

Vietnam, a major beneficiary of the first US-China trade war that’s watched its trade surplus with the US balloon in recent years, signaled it’s working on ways to re-balance its economic relationship with the US.

Among the bigger surprises of Trump’s first week was his softer-than-expected tone with China, which remains a key source of US imports as well as an important export market for US agriculture producers. In Davos, China was noticeably more conciliatory than it was when Trump entered the White House in 2017.

China is happy that tariffs weren’t immediately imposed, said Tu Xinquan, dean of the China Institute for WTO Studies at the University of International Business and Economics in Beijing.

But China’s leadership is prepared for the worst-case scenario, he said, noting that since Trump’s first term, China has taken various steps to mitigate US trade policies and reduced its reliance on the US as a market and supplier of goods.

“Our mood is more calm, more stable than eight years ago,” he said.

© 2025 Bloomberg

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