“He mocked me for half an hour, saying I was a complete idiot,” said Robert Fico, the prime minister of Slovakia, on March 31, after Ursula von der Leyen, the president of the EU, had just called to reprimand him for speaking bilaterally with the Trump administration on trade and tariffs.
He had broken the first rule of the European Union’s “trade war club”: “You, a national leader, do not talk about trade. The EU speaks with one voice.”
The EU’s response to Donald Trump’s tariff barrage is still under negotiation, although it announced today (9/4) the first trade countermeasures against the United States, some of which will come into force on April 15. The tariffs approved by European member states will reportedly range between 10% and 25% and will include products such as Louisiana soybeans, diamonds, agricultural products, poultry and motorcycles.
Europe’s big advantage
The bloc is by no means the hardest hit by America’s tariffs, with the EU’s rate now set at 20%, well below China’s 125% or Vietnam’s 46%.
The instinct of many in Europe was to strike back at Trump, but the collapse of global stock markets and China’s strong retaliation may have already dealt the US president a first blow, which is why he announced that he was “freezing” new tariffs on imports for 90 days, except for those related to China.
The EU, as America’s largest trading partner, chose to take a few weeks to formulate a more measured and targeted response.
Europe has a big advantage. Unlike America, it continues to trade with the rest of the world on the same terms as before, emphasizing that this will limit economic damage.
EU: The world’s largest trading bloc
With investors fearing that a global trade war could trigger a recession, sharp European countermeasures would compound the damage. Instead, European governments could offset the burden on their economies from US tariffs with more spending. The European Central Bank could also cut interest rates more quickly.
The messages from leaders so far have been broadly consistent. “Nothing can be ruled out, all options are on the table,” French President Emmanuel Macron said shortly after the US tariffs were announced.
“The EU will respond with proportionality, unity and the strength that comes from being the largest trading bloc in the world,” stressed Pedro Sanchez, the Spanish prime minister, while Giorgia Meloni, the Italian prime minister, is preparing a visit to the White House to negotiate on behalf of Europe, with a collective message.
He failed to sow discord in the EU – He achieved the opposite
In a way, Trump missed an opportunity to sow discord. His tariffs treat the EU as a single trading bloc, as it legally is – applying different rates to different countries would pit them against each other.
Meanwhile, his insistence on the US annexation of Greenland has led even the usually recalcitrant Hungarians to support the common European line.
But maintaining unity in the EU may prove difficult. Macron hosted major industrialists and exporters at the Elysee Palace to urge them to suspend investment in America. Not everyone was happy.
German officials fear that businesses could press for favors in Washington, undermining the EU’s collective response. Politicians, unwilling to let a… “good crisis” go to waste, are eager to hit out at American tech companies – Ireland, which hosts many European headquarters of American tech companies, was predictably horrified.
France and Italy have their own sensitive spots: they successfully invoked the exemption of bourbon from the EU’s retaliation for previous American steel tariffs after Trump threatened that targeting the drink would result in 200% tariffs on European wine.
Three steps of force from Europe if Trump doesn’t back down
The way decisions are made will matter. Under EU treaty law, tariffs are a matter for the Commission to decide alone. But tougher countermeasures, such as restricting market access, require a qualified majority of member state governments. And some parts of the trade defence arsenal remain firmly in the hands of countries. Raising taxes on US tech giants is something national governments can do, for example – corporate taxation is outside the Commission’s remit.
Ursula von der Leyen has already repeated a long-standing EU offer to eliminate tariffs on all industrial goods between the bloc and America – Trump agreed to work towards such a zero-tariff deal in 2018, after a trade dispute during his first term.
This time, however, it immediately rejected the offer, demanding that the EU buy $350 billion worth of fossil fuels (about the entire annual energy imports) in order to look at it “favorably”.
Economic coercion is its “aces up its sleeves”
Europe’s initial response is measured. If Trump does not back down, however, and continues with the threats and “ups and downs”, it could combine three things:
1. Ιt will show strength.
The EU should consider using its toughest tool: the instrument of economic coercion (ACI).
The ACI allows the EU to use a wide range of measures, beyond tariffs, to retaliate against countries that exert economic pressure on its member states. These could include banning exports of products that the Americans would find difficult to replace, or excluding certain American companies from the European market.
Economic coercion takes weeks or even months to move from an investigation to a final decision, which is well-suited to bringing Trump to the negotiating table. It is a tool commensurate with the size and power of the EU. But European leaders continue to shy away from using it.
Escalation of European countermeasures as a lever of pressure
2. It is the continuous increase in threats of tariffs as a means of pressuring negotiations.
Trump first imposed tariffs on steel and aluminum imports, second tariffs on cars and third new “retaliatory” tariffs. This allows the EU to gradually escalate.
On April 7, it presented its own list of trade countermeasures to counter the US tariffs on steel and aluminum, while two days later it announced tariffs, reaching 21 billion euros and ranging between 10% and 25%.
The US tariffs on metals affect EU exports worth around 26 billion euros, but the bloc decided to retaliate on a smaller amount of US exports, signaling that it does not want a trade war. Moreover, the Commission stated that “these countermeasures can be suspended at any time if the US agrees to a fair and balanced outcome from the negotiations.” The next step could be retaliation for car tariffs,
Can the EU become the world’s dominant champion of free trade?
3. The EU’s response could be support for European businesses that are suffering.
Pedro Sanchez met with business leaders shortly after Trump’s tariffs were announced and presented a €14 billion plan, including €5 billion in credit guarantees for businesses facing liquidity problems due to lost orders – the Spanish leader spoke in front of a billboard that read “Our values are not for sale, our wines are for sale.”
Other countries are also sure to offer relief to their own businesses. For its part, the European Central Bank, at its meeting next week, could announce an unexpectedly sharp cut in interest rates to ease the gloomy economic mood in the markets.
The EU now has an unusual opportunity to abandon protectionism and become the world’s dominant champion of free trade.
Instead, Europe wants to erect barriers to stop global overproduction from washing up on its shores as the American market closes. Von der Leyen made this clear in a phone call on April 8 with Li Qiang, China’s premier. This would be the perfect time to reduce Europe’s absurd tariffs on agricultural imports, but that is not being discussed.
The battles last as long as necessary
Many officials say they want more trade deals – France is reconsidering the December deal between the EU and Mercosur, the South American trading bloc, which it had refused to sign.
But the EU has not yet considered bolder moves, such as applying to join the 12-nation CPTPP, the Asia-oriented trade deal that succeeded the Trans-Pacific Partnership after America withdrew during Trump’s first term.
Another European rule is that battles last as long as necessary. With global order and Europe’s security at stake, this trade war is undoubtedly about more than tariffs. The same goes for EU goals.
