In preparation for a possible second term for Donald Trump as US president, the European Union is formulating a two-step trade strategy aimed at mitigating the impact of his trade policies.
This strategy includes, according to a report published by the Financial Times:
- Delivering a Quick Trade Deal to Trump
- And planning targeted retaliatory measures if Trump imposes punitive tariffs on it.
Trump’s proposed definitions
Trump has pledged to implement a minimum tariff of 10% on foreign goods, which EU officials estimate could reduce EU exports by about €150 billion a year.
The European Commission’s trade department is preparing lists of U.S. imports that could face duties of 50% or more if negotiations fail and Trump continues to impose higher tariffs, the newspaper reported.
“We have to show that we are partners with the United States,” a senior EU official told the newspaper. “We will look for deals, but we are prepared to defend ourselves if necessary. We will not be afraid.”
The EU’s strategy during Trump’s first term – which included imposing tariffs on a number of products – had a major impact on Trump’s core voter base.
The tariffs were part of a rebalancing effort after Trump imposed tariffs on €6.4 billion worth of EU steel and aluminium imports in 2018.
Valdis Dombrovskis, the European Union’s trade commissioner, expressed hope that previous confrontations could be avoided, stressing the importance of strategic alliances between the United States and the European Union in the current geopolitical context.
“We believe that the United States and the European Union are strategic allies and especially in the current geopolitical context, it is important that we work together on trade,” he told the newspaper.
But he added: “We have defended our interests with tariffs and we are ready to defend our interests again if necessary.”
Economic consequences
The tariff war is expected to hurt the EU more than the US, potentially costing the EU 1% of its GDP compared to 0.5% for the US.
However, it would also increase inflation in the United States by 1.1%, compared with just 0.1% in the European Union, according to Jan Hatzius, chief economist at Goldman Sachs.
EU policymakers hope Trump will avoid fueling inflation given American voters’ concerns about the cost of living.
previous trade tensions
During Trump’s first term, the EU and the US were able to negotiate deals on specific products, such as EU beef and soybeans.
Despite these efforts, the US annual trade deficit with the EU widened to €152 billion in 2020 from €114 billion in 2016. The deficit has remained stable under President Biden, reaching €156 billion in 2023.
With economic growth in the EU slowing compared to the US, weakening demand, EU officials acknowledge the challenge of significantly increasing US exports.
U.S. exports are dominated by commodities, while EU exports include high-value goods such as pharmaceuticals and luxury cars.
