From Alignment to Hedging: Assessing the Status of Transatlantic Alliance in Response to Trump 2.0

Yi Hsueh, MSc Development Management, Political Economy

Since U.S. President Donald Trump began his second term last January, countries have been seeking ways to adapt to the uncertain economic environment. Among the adjustments, two developments stood out: Both the European Union (EU) and Canada have softened their stances on Chinese Electric Vehicles (EVs), diversifying their trading partners from relying heavily on the U.S. This signals a new message: countries from the Transatlantic Alliance are now hedging economically in response to Trump 2.0.

In 2024, the EU imposed definitive countervailing duties ranging from 7% to 35% ① on Chinese battery electric vehicles (BEVs) after conducting its anti-subsidy investigation ②. This type of tariff is a long-term import tax aimed at foreign goods that are perceived to harm domestic industries. The same year, Canada’s Prime Minister Justin Trudeau followed the U.S. and imposed 100% tariffs on Chinese EVs ③. Both the EU and Canada were aligned with the U.S. trading stance on China’s EV industry.

However, the geopolitical landscape changed dramatically after Trump began his second term in January 2025. Firstly, the EU and Canada faced economic turbulence from Trump’s tariffs ④. Moreover, his pursuit of Greenland and the repeated claims about making Canada “the 51st state” ⑤ also threatened their sovereignty. Facing unprecedented pressure from their primary ally, the EU and Canada have found themselves in a situation of high uncertainty. As a result, they began to conduct what scholar Kuik Cheng-Chwee describes as “hedging” in international relations. In his research paper, The Essence of Hedging, Kuik argues that states pursue a set of counteracting policies to maximize gains while minimizing risks ⑥. Hedging involves continuous adjustments and typically occurs when future actions from other nations are too unpredictable. This logic might help explain the EU and Canada’s shifting stance on Chinese EV trade, suggesting that they are hedging against the economic risks posed by the U.S.

On January 12, 2026, a new guidance confirmed an agreement between China and the EU ⑦, which allows Chinese EV exporters to avoid the imposed tariffs by submitting price undertakings.  

In the same month, Canada also took a historic step by forging a new strategic partnership that provides China with the most-favoured nation tariff rate of 6.1% ⑧ on Chinese EVs, while simultaneously inviting more Chinese joint ventures in Canada to accelerate its EV industry. The agreement came during Prime Minister Mark Carney’s visit to China, which is also considered a substantial diplomatic shift after the bilateral relations had soured since the retaliatory arrests of each other’s citizens broke out in 2018 ⑨.

Despite these hedging efforts, the U.S. remains an irreplaceable ally for both the EU and Canada. Economically, it serves as their largest trading partner. Militarily, all three are bound together in the North Atlantic Treaty Organization (NATO). Since states hedge when outcomes are unpredictable, an acute security crisis could prompt the EU and Canada to revert their behavior and realign with their traditional allies. Given the absence of such a crisis amid Trump’s unpredictable policies, both may continue strategic engagement with China.

The EU and Canada’s pivot on Chinese EVs reflects their response to the political and economic uncertainty of Trump’s second term. Without an urgent threat to the status quo, this strategy of diversifying trading partners, even to a perceived “adversary,” will likely endure in the near future.

Sources

① European Commission, « EU Commission imposes countervailing duties on imports of battery electric vehicles (BEVs) from China », European Commission, 12 December 2024.

② European Commission, « Commission Implementing Regulation (EU) 2024/2754 », European Commission, 29 October 2024.

③ Promit Mukherhee and Akash Sriram, « Canada to impose 100% tariff on Chinese EVs, including Teslas », Reuters, 27 August 2024.

④ Barath Harithas, Kyle Meng, Evan Brown, and Catherine Mouradian, Barath Harithas, « “Liberation Day” Tariffs Explained », Center for Strategic and International Studies (CSIS), 3 April 2025.

⑤ BBC, «Donald Trump calls for Canada to become 51st state over tariffs », BBC, 11 March 2025.

⑥ Kuik Cheng-Chwee , « The Essence of Hedging: Malaysia and Singapore's Response to a Rising China », Institute of Southeast Asian Studies, August 2008.

⑦ European Commission, « Commission issues Guidance Document on submission of price undertaking offers for battery electric vehicles from China », European Commission, 12 January 2026.

⑧ Prime Minister of Canada, « Prime Minister Carney forges new strategic partnership with the People’s Republic of China focused on energy, agri-food, and trade », Prime Minister of Canada, 16 January 2026.

⑨ Amy Hawkins, « Canada PM hails strategic partnership with China to adapt to ‘new global realities’», The Guardian, 16 January 2026.