EU-US Trade Tensions Escalate: Potential Retaliatory Tariffs Loom

EU-US Trade Tensions Escalate: Potential Retaliatory Tariffs Loom

As trade tensions between the European Union and the United States continue to rise, the specter of retaliatory tariffs looms large. If US President Trump follows through on his threat to impose a 10% benchmark tariff on EU goods, as widely expected, the EU is poised to respond with tariffs on American imports, including prominent products such as Boeing airplanes.

EU officials anticipate that the US will retain some tariffs even after trade negotiations conclude, a position that the European Commission, formerly responsible for EU trade affairs, has not clarified whether it would trigger retaliation. Stephane Sejourne, the EU's industry chief, told Bloomberg, "If the U.S. insists on an asymmetrical deal, including maintaining a 10% tariff even after a negotiated outcome, we need to retaliate and rebalance in key areas."

The EU is scrambling to reach an agreement before the July 9 deadline, when tariffs on US exports are set to rise to 50%. Trump has previously attacked the EU, saying it was "formed to take advantage of the U.S.," and railing against trade deficits and what he called trade barriers.

Key Trade Disputes

Current US tariffs cover an estimated 380 billion euros ($439 billion USD) of EU exports to the US, roughly 70%. According to anonymous EU officials, negotiations have accelerated, and the commission is making every effort to find a win-win solution. Bloomberg previously reported that the EU informed member states last week that the US's persistent demands would result in an unfair agreement, including fish export quotas that could violate WTO rules, non-reciprocal tariff measures, and what EU officials called "unrealistic" economic security demands.

Most EU officials expect that even if an agreement is reached, the US will retain most tariffs, including the 10% benchmark tariff. The agreement the UK signed with the US this month retains a 10% tariff on almost all British exports.

Maros Sefcovic, the EU's trade chief, said in Berlin on Monday: "We know that the U.S. very much wants to have the 10% as a benchmark tariff, and we are also crafting rebalancing measures in case we don't have a fair outcome in the negotiations and to protect European businesses and workers."

Sejourne emphasized that Airbus SE in Toulouse, France, cannot withstand "unfair competition" from Boeing, based in Arlington, Virginia, because European aircraft manufacturers face an additional 10% tariff. "If we don't rebalance, some leading industries will lose protection, so we must take action."

Bloomberg previously reported that even if negotiations go smoothly, the EU's best expectation is still to reach an agreement in principle allowing negotiations to extend beyond July 9, extending the current truce.

Potential Retaliatory Preparations

The EU has already approved tax increases on 21 billion euros of US goods (in response to Trump's tariffs on aluminum and steel products), targeting politically sensitive areas such as soybeans from Louisiana (the home state of US House Speaker Mike Johnson), agricultural products, poultry, and motorcycles. The EU is also preparing to increase taxes on 95 billion euros of US goods (for reciprocal tariffs and auto tariffs), and the list may be adjusted based on the requests of member states and industries.

Speaking to reporters while returning from the G7 summit in Canada this month, Trump said he believed the EU had not yet offered a "fair deal": "Either they make a good deal, or they pay what we say."

The United States has already imposed tariffs on European cars, steel, and aluminum. Trump has also announced that the US is working to expand tariffs to other industries, including pharmaceuticals, semiconductors, and commercial aircraft.

Analyzing the Economic Impact

The impact of a full-blown trade war between the EU and the US would have far-reaching consequences for the global economy. It could lead to higher prices for consumers, reduced output for businesses, and disruptions to global supply chains. Certain sectors, such as the aerospace industry, may be particularly affected due to tariffs on aircraft. However, it's important to note this is not investment analysis, and no investment decisions should be made based on this information.