EU ready for deal with US over tariffs, but what if it gets ignored?

LONDON – Retaliate against United States tariffs or seek a deal with Washington?

Meeting for the first time since President Donald Trump

slapped 20 per cent tariffs on European Union exports to the US,

the bloc’s trade ministers agreed that they must seek to avoid an all-out trade war with America.

Speaking at the end of an EU ministerial meeting on April 7, European Commissioner for Trade and Economic Security Maros Sefcovic revealed that months ago and soon after Mr Trump was sworn in as US president, the union proposed to Washington that all tariffs on industrial goods should be lifted, and claimed that the offer still stands.

The message was reinforced by Dr Ursula von der Leyen, president of the European Commission, the EU’s executive body, who vowed to keep the offer “on the table” because the union “is always ready for a good deal”.

But there was no immediate response from the US.

Nor is it evident that the EU can reach a consensus on what to do should the Americans ultimately choose to ignore Europe’s olive branch.

Mr Trump’s 20 per cent tariffs – which come into effect on April 9 and apply in particular to European steel, aluminium and cars – affect about €380 billion (S$561.8 billion) worth of EU exports.

The EU currently charges an average tariff of around 1.6 per cent on US products and 10 per cent on imported US cars.

But that is mainly because Mr Trump pulled back during his first term as president from concluding a proposed Transatlantic Trade and Investment Partnership, which would have eliminated most industrial tariffs.

It, therefore, makes perfect sense for the EU to revive its previous offer of a reciprocal elimination of all duties on industrial goods.

The move neatly avoids an immediate clash with Washington. It also portrays the EU as a coherent, united bloc that upholds free trade.

However, as Mr Sefcovic, the EU’s trade commissioner, admitted on April 7, even if the Americans took the European offer seriously, reaching any deal would take a long time.

More significantly, the US is unlikely to be impressed with just an offer to abolish tariffs on industrial goods; Washington will also demand that America’s agricultural products be exempt from EU tariffs.

And this is not something countries such as France, with its large and politically influential farming sector, can accept.

So, while the EU continues to talk about a potential comprehensive trade settlement with the US, it knows that this is hardly a realistic prospect.

Nor is there any consensus inside the EU about Europe’s retaliation against the US tariffs.

Everyone accepts the principle that retaliatory tariffs should be imposed gradually and must start with measures designed to signal European displeasure but not strong enough to unleash a trade war.

The question is which measures should be chosen and in what sequence.

France and Italy oppose a proposal to retaliate against US bourbon whiskey because Mr Trump has already warned that if this happens, he will slap a 200 per cent tariff on European wine.

So, unsurprisingly, Mr Stephane Sejourne, the French member of the European Commission, dismisses the bourbon idea as “disproportionate”.

Another proposal for retaliation – and this time one that France likes – is to slap tariffs on US tech giants such as Microsoft, Amazon, Google and Meta.

France has long pushed for special duties on digital services offered by such US platforms and, on this point, enjoys the support of other EU heavyweights such as Germany.

However, Ireland, which relies heavily on US investment in the tech and pharmaceutical sectors, dislikes the proposal.

Targeting digital services “would be an extraordinary escalation at a time when we must be working for de-escalation”, Irish Trade Minister Simon Harris said at the end of the April 7 EU meeting.

Nor is the idea of hitting America’s tech giants popular with EU members close to Russia’s border – such as the Baltic states – which view all trade disputes with Washington through the prism of their military links with the US. 

Besides, as some EU trade ministers pointed out, US tech companies could easily pass on the costs of extra tariffs to their European consumers without experiencing a dent in their profit margins.

As a result, many of the initial retaliatory moves the EU is likely to take against the US are likely to resemble those hesitant moves previously taken by the EU during Mr Trump’s first presidency.

Starting April 15, the EU may impose tariffs on US steel and aluminium, affecting famous US brands such as Harley-Davidson motorcycles.

The first wave of the EU retaliation will create much noise but less impact since it will affect only about €26 billion worth of US goods, around 6 per cent of the total yearly US exports of €462 billion to Europe.

A second wave of retaliation, slated for mid-May, could touch agricultural products that primarily originate from Republican-leaning US states, hoping that this would affect Mr Trump’s electoral base and persuade Washington to relent.

Still, few officials in Brussels believe that this is enough.

However, the debate inside the EU is no longer just about the challenge from the US; it is also shaped by growing fears that the much heavier US tariffs imposed on China will divert Chinese exports in ever-larger quantities to European markets.

The EU’s nightmare is that it may be squeezed by both China and the US simultaneously.

So it is no wonder that, at least for the moment, European governments still hope that falling stock markets and growing domestic unease in the United States will force Mr Trump to relent without further confrontations with Europe.