EU showdown with Trump on tariffs still looms
Market may underestimate US-EU trade war possibility
THE primary focal points so far of US President Donald Trump’s tariffs policy have been China, Canada and Mexico. Yet, that could change in June and July with the European Union (EU) much more firmly in his sights.
This matters not just for these major powers, but also the wider global economy. The EU is one of the largest US trading partners, sending more than US$600 billion in goods last year to the United States and buying around US$370 billion worth of US goods in return.
In April, Trump announced a 20 per cent tariff on most EU goods, but later cut this to 10 per cent to allow time for negotiations under a 90-day pause period. However, last Friday (May 23), Trump unilaterally threatened to raise the tariff rate to an even higher level of 50 per cent as soon as June 1.
To be sure, Trump appears to have had a positive conversation on Sunday with European Commission President Ursula von der Leyen which defused the looming Jun 1 timebomb. She reported on social media that she had a “good call with @POTUS…To reach a good deal, we would need the time until July 9”. Trump responded that he “agreed to the extension – July 9, 2025 – It was my privilege to do so”.
So far, so good then, and this exchange offers a possibility that a US-EU trade war can be averted. However, with the clock ticking, the prospects for an agreement appear as uncertain as ever. This is not least after last week’s call between European Trade Commissioner Maros Sefcovic, US Commerce Secretary Howard Lutnick and US Trade Representative Jamieson Greer, which reportedly fell far short of expectations.
Non-tariff trade barriers
While Sefcovic had hoped to meet face-to-face with Greer next month, this is now uncertain, despite Sunday’s von der Leyen-Trump call. One of the key challenges for Brussels is its struggle to understand, fully, what Trump is looking for in negotiations.
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EU officials have developed a framework covering tariff and non-tariff barriers, as well as ways to enhance economic security, mutual investments, strategic purchases and cooperation on global challenges. This includes an EU proposal which could take US tariffs down to zero on many goods.
However, Trump appears more focused on non-tariff trade barriers. This point was highlighted recently by US Deputy Treasury Secretary Michael Faulkender, who said that the United States faces a “simultaneous challenge” of negotiating with the EU as a bloc on tariffs while also seeking to address most of those non-tariff barriers in talks with individual European nations, creating a “negotiation problem”.
With no clear road map to a July solution in sight, Brussels is already thinking through what next steps would be if no deal can be agreed before the deadline. The menu of options includes moving forward with US$20 billion of tariffs in response to the US steel and aluminium duties. Plus potentially implementing a wider US$100 billion retaliation that is currently being discussed by the 27 member states.
Unquestionably, the EU can be a frustrating partner to negotiate with, as other nations including the United Kingdom have found. Yet, the main challenge appears to lie at the feet of Trump and his team. In particular, there is an assumption on the part of the president that the EU is a hostile power that, in his own words, was “”formed in order to screw the United States. That’s the purpose of it, and they’ve done a good job of it, but now I’m president”.
He went on: “They don’t accept our cars, they don’t accept our farm products. They use all sorts of reasons why not, and we accept everything from them.”
While Trump’s attention span can often be very limited, this line of argument is not a new one for him. In his first term of office before the pandemic, he declared that “I think the EU is a foe, what they do to us in trade”. While some dismissed this remark at the time as just another spur-of-the-moment presidential outburst, Anthony Gardner – who served as US ambassador to the EU under the Obama administration – warned “Europe, wake up: the US wants to break up the EU”.
This view has also been advanced more recently by Stephen Moore, a former economic adviser to Trump who now works for the conservative Heritage Foundation think tank. He said that “what may happen in Europe... is that we may try to negotiate individually with countries in Europe”, rather than as a 27-member bloc.
The contrast here between Trump’s apparently deeply held view about the EU, and US policy at the start of the European integration process, could not be starker. Embodied in John Kennedy’s 1962 Atlantic Partnership speech, the US view then was that a united Europe would make future wars in the continent less likely; create a stronger partner for the United States in meeting the challenges posed by the Soviet Union; and offer a more vibrant market for building transatlantic prosperity.
“Fortress Europe”
Yet, US attitudes gradually became more ambivalent as European integration deepened, particularly under recent Republican administrations. In the economic arena, for instance, the drive towards the European Single Market led to US concerns about whether this would evolve into a “fortress Europe”. Similarly, the creation of the European Monetary Union prompted worries about the dilution of US primacy in the financial sector and macroeconomic policy. Moreover, in competition policy, the increasing assertiveness of the European Commission has periodically raised US concerns about EU over-reach.
Prior to Trump, the George W Bush administration came closest to questioning the value of European integration. For instance, the controversy over the Iraq conflict more than two decades ago saw Washington querying the benefits of EU collaboration in the security and defence arena. Then defence secretary Donald Rumsfeld even drew a distinction between “old” and “new Europe” with the latter (mainly Eastern Europe) perceived as more favourable to US interests. This is a theme that has also become salient during the Trump era with the president in his first term cultivating particularly close relationships with Poland and Hungary in East Europe.
However, while the Bush team eventually recognised the need to draw back from this divisive approach with Europe, the Trump team appears instead to lean in. This highlights the very real prospect, which markets may underestimate, that a US-EU trade war could still materialise, even though both sides have strong political and economic incentives to avoid this.
The writer is an associate at LSE IDEAS at the London School of Economics
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