EU's trade dilemma: Navigating Trump's tariff threats
The return of Donald Trump to the presidency of the United States presents a significant challenge for the European Union's trade policy. His threats to raise tariffs on imports from the EU suggest a potential trade war between Brussels and Washington.
"I told the European Union that they must make up their tremendous deficit with the United States by the large-scale purchase of our oil and gas. Otherwise, it is TARIFFS all the way!!!," Trump wrote in a December post on the social media site Truth Social.
The deficit is indeed vast. In 2023, European Union countries exported goods worth €502 billion to the USA, while imports from the USA to the EU reached €344 billion. This resulted in the EU "27" recording a trade surplus of €158 billion with the USA.
The EU fears Trump's announcements
The imposition of 10-20 percent tariffs by the USA on imports from the EU, followed by EU retaliatory tariffs, could lead to significant losses for European countries. Trump aims to support domestic production in this way, even if it is less competitive than foreign products.
The announcement of tariffs has raised fears of a trade war in EU capitals. According to analysts, such a scenario is plausible. However, there are opinions in Brussels that tariffs and a trade war can be avoided. A bargaining chip for Brussels could be another issue, such as the import of LNG, or liquefied natural gas, to the EU.
Jacob F. Kirkegaard, an expert at the Brussels think tank Bruegel, explained that Trump employs tariff threats to achieve political objectives. He noted that with China, the aim is to weaken its economy, while for Canada and Mexico, the focus is on limiting immigration and reducing drug smuggling. In Europe, although Ukraine plays a role in the relationship, Trump seeks concessions in other areas as well.
The United States is currently the largest supplier of LNG and oil to the EU. This import increased in recent years after Russia attacked Ukraine, leading to a significant reduction in Russian energy supplies to the EU.
Despite several sanction packages imposed on the Kremlin by the EU, Russian LNG still reaches European terminals. Further restrictions on gas imports from Russia could open the door even wider for American companies exporting energy resources, which might persuade Trump that a trade war with Europe is not worthwhile.
The stakes are high, as €502 billion of the EU's annual exports to the USA include machinery and electronic equipment, cars and car parts, pharmaceutical and chemical products, and luxury goods. These represent millions of jobs in European industry and significant tax revenues for EU capitals.
Although an agreement is possible, experts agree that the EU should not wait for Trump's decisions but be prepared for a negative outcome.
This is how the EU can respond to Trump
According to Bruegel analysts, the EU should first employ diplomacy and, to avoid tariffs, propose increased LNG imports or military equipment purchases. The EU could also lower tariffs on car imports from the USA.
Alongside the carrot, a stick is also essential. Analysts suggest that a "credible threat of retaliation" is necessary. The European Commission should prepare a list of products imported from the USA that could face the same tariffs—ranging from 10 to 20 percent—as potential retaliatory measures. However, imports that the EU heavily relies on should be excluded from this list.
Secondly, the EU should uphold and strengthen the current trade system based on World Trade Organization (WTO) principles. This organisation can be approached for arbitration in trade disputes.
Finally, experts advise that the EU expand its network of trade agreements, particularly with Mercosur, the United Kingdom, Switzerland, and the Indo-Pacific and African regions.
Europe must respond firmly yet cautiously. Retaliatory tariffs could escalate tensions, but open capitulation would create a dangerous precedent," said Charles Grant, director of the Centre for European Reform, as quoted by "Times".
