EU plans countermeasures if tariff negotiations fail with US

​​​​​​​BRUSSELS

The EU is prioritizing negotiations with Washington but the bloc is planning countermeasures against the US if tariff negotiations are not satisfactory via retaliation and trade diversification.

US President Donald Trump’s protectionism and “America First” approach drove a wedge between the EU and the US. The two sides have the world’s largest trade and investment relations with an annual volume of more than $1.7 trillion.

Trump’s aggressive policies and harsh rhetoric in his first term and second weakened the perception of a mutual alliance.

EU exports to the US totaled $605.8 billion and US imports to the bloc hit $379.9 billion last year, according to data compiled by Anadolu. The EU had a surplus of $225.8 billion and Trump is not happy with such trade deficits.

EU countries were upset by the 25% steel and aluminum tariffs Trump imposed, and the EU said it would respond swiftly and proportionately while prioritizing negotiations. Meanwhile, Washington hit the EU with 25% auto tariffs.

The EU also faced reciprocal tariffs of 20% on the entirety of the bloc.

The EU’s efforts to negotiate have not been reciprocated and the bloc prepared to retaliate to the steel and aluminum tariffs via phased countermeasures, the first of which will begin April 15.

At the same time, Trump’s tariff war with China continued, raising tariffs on Beijing to 125%, while issuing a 90-day tariff pause on other countries. He said more than 75 countries are negotiating with him on tariffs and are not retaliating.

A baseline 10% reciprocal tariff will still be active during the pause, which gives breathing room to European countries.

EU Commission President Ursula von der Leyen welcomed the suspension of tariffs as an important step toward stabilization, noting that the EU is committed to negotiations.

She said the bloc will diversify its trade partners by engaging with other countries, which account for 87% of the global trade while accelerating efforts to remove barriers in the bloc’s market. She said the EU would suspend countermeasures against the US for the duration of the 90-day pause, giving the bloc ample space and time for negotiations.

EU sources said Washington’s tariffs will affect EU exports worth €380 billion ($433.2 billion), while 70% tariffs on EU exports will result in an annual tax of around $91.2 billion. Trump suggested the EU will buy energy products from the US to avoid tariffs.

The EU has been bottlenecked by the war in Ukraine in its natural gas supply, turning to liquefied natural gas (LNG). The bloc became the largest buyer of US-based LNG in the last three years but Trump deems it insufficient, demanding the EU imports energy products worth around $400 billion.

While the EU is willing to buy more energy products from the US, the bloc believes a compromise can be made. China is expected to be another aspect of negotiations. As Trump wages his war against Beijing, the US may try and pull the EU to its side through tariff exemptions, in exchange for having a common stance on China.

EU’s pros, cons

The EU is the largest single market in the world with free movement of goods, capital, services and people, with a population of 450 million and a gross domestic product (GDP) of around $18.2 trillion. The bloc’s extensive trade networks through numerous agreements are the pros that allow it to function, but Washington’s tariffs spell disaster for its economy.

EU goods will be more expensive in the US and demand will decline, which will lead to lower exports in key sectors like automotive, machinery and agriculture. At the same time, EU producers using US-imported ingredients will face higher costs, hampering the bloc’s competition, while making products more expensive and giving rise to inflation.

Washington’s tariffs on the EU can also strain the European Central Bank (ECB)’s monetary policy and weaken the euro. Economic contraction, loss of investment and employment, as well as national income, are among the cons for the EU.

The EU will take countermeasures against the tariffs to support its industries, which may lead to an increase in domestic production, while EU exporters’ search for new markets will gain momentum, as exporters will diversify the EU’s foreign trade via emerging markets in Asia, Africa, and South America -- trade agreements with countries on those continents will be in focus.

The EU-US tense relations could also bring momentum to green and digital transformation efforts, led by the bloc’s energy needs. The EU may look to boost renewable energy investments and efforts to reduce foreign energy dependence.

Political decision-making mechanisms in the region can sometimes be clogged by bureaucracy but in the face of such major challenges, more coordination, solidarity and cohesion within the Union may come to the fore.