US tariffs of 20% on imports of goods from the EU entered into force today
The European Commission is talking to EU member states over potential options to respond to US President Donald Trump’s announcement of 20% tariffs on EU imports on April 2. Member states are divided between adopting a robust stance and proceeding with caution to avoid further damage to the bloc’s economy. In addition to reciprocal tariffs, other options the EU is considering includes using its anti-coercion instrument and restricting data flows.
What’s next
Subsidiary Impacts
- Growth rates will likely be revised downwards for several EU countries as a result of the uncertainty triggered by the tariffs.
- To facilitate more trade with other regions, pressure may grow on the EU to again delay the introduction of its deforestation regulation.
- Higher US tariffs could dissuade some member states from reducing trade and economic cooperation with China.
Analysis
The EU and United States have the world’s largest trade relationship. In 2023, the EU exported EUR503bn (USD576bn) of goods and EUR319bn of services, while importing EUR347bn of goods and EUR427bn of services. The EU’s most valuable goods exports to the United States are pharmaceuticals, followed by automobiles. US exports to the EU are led by energy, followed also by pharmaceuticals.
In March, the United States announced 25% tariffs on steel and aluminium plus derivative products, affecting approximately EUR26bn of EU exports. This was followed by automotive tariffs of 25% affecting around EUR56bn. President Donald Trump’s announcement of a 20% tariff on other products will therefore hit a further significant amount of trade, although pharmaceuticals is excluded for now.
It is generally expected that US tariffs will cost the EU economy between 0.5% and 1% of GDP annually. With the United States accounting for 20% of EU exports, this will be hard to replace (see EU/US: Tariff rises will cause both economic losses – March 12, 2025).
EU retaliation playbook
There is a well-rehearsed process in Brussels for dealing with trade disputes: obtain member-state consensus for tough politically-targeted retaliatory measures with the expectation that these will be followed by agreements with the non-EU country to remove the problem. With a qualified majority required to vote against measures, they typically come into force.
One example came in 2018 with retaliatory tariffs against then US steel tariffs. These are due to be reintroduced given the new round of US steel tariffs, although this time products such as Bourbon and Harley-Davidson motorbikes are excluded following French and Italian opposition.
The EU has not yet agreed on how to respond to Trump’s 20% tariffs. The EU aims to find goods imports where substitutes are easily available to minimise economic damage, and is running out of targets.
Although WTO disputes can be raised, this would take time and would most likely go nowhere in the absence of an appellate body. With this partly in mind, the EU has recently boosted its trade toolbox with a number of measures, including the anti-coercion instrument.
The anti-coercion instrument would give Brussels a wider range of options for retaliation
This allows for a wide range of actions beyond trade in goods including the right to participate in public procurement tenders, and suspensions in trade in services and trade-related aspects of intellectual property rights.
Caution in Brussels
EU institutions and stakeholders are showing some signs of nervousness in how to respond to all of Trump’s tariffs. For example, EU spirits makers are worried that they will be targeted with further US actions in a crucial market for them if bourbon duties are introduced.
Italian and Spanish ministers have also called for patience, while long-standing Chair of the Parliament International Trade Committee Bernd Lange has suggested the anti-coercion instrument should only be used as a last resort. He has been similarly cautious about French suggestions of targeting US services.
There is a strong degree of nervousness in Brussels about the potential impact if US technology companies or financial services are targeted, essentially that retaliation could in turn threaten fundamentals of the global economy like payment systems or technology platforms.
Perhaps the most likely step would be to prohibit US companies from competing for procurement contracts. This would play into the EU’s strategic autonomy agenda.
The EU is also likely to review the issue of data transfers to the United States, where the existing agreement is already under pressure, although new restrictions would be more damaging for the EU economy. There will be other regulatory measures examined, but the EU will be keen again to avoid economic damage and keep member states on board.
There are also questions about what legal basis the EU will use for retaliatory measures, since it is not clear the anti-coercion instrument definitely covers Trump’s measure. To apply the anti-coercion instrument, Brussels would likely have to prove that Trump’s tariffs are tactics aimed at coercing Brussels and/or member states to amend their policies in other areas, such as value-added tax and digital regulation.
Avoiding obvious breaches of WTO rules will be taken into consideration given that the EU wants to seek to protect these as much as possible from further disintegration.
Other options
For some time, the EU has been suggesting to its US counterparts the idea of a zero-tariff deal on industrial products, but there has been little interest from the US side as such a deal excludes food and drink.
However, the EU wants to pursue a diplomatic resolution to the tariff dispute and will be willing to offer concessions to the Trump administration should it agree to engage in talks.
Should both sides enter talks, Brussels could offer lower tariffs to the United States on industrial products, increased purchases of US goods such as liquefied natural gas, and potentially agree to some reviews of digital and other regulations. US payments under the EU’s Carbon Border Adjustment Mechanism could also be included.
The EU is ready to make concessions to Washington aimed at easing trade tensions
Although there have been plenty of suggestions that US actions will encourage the deepening of the EU’s trade relations with other countries, there has as yet been little sign of this or even any coordination of responses.One early test of like-minded cooperation will come in May’s UK-EU summit, where the trade content is likely to be limited, in part because of the need to deal with security issues as well as potential complications arising from the prospect of a trade agreement between the United Kingdom and United States (see UK/US: Limited trade agreement is possible – March 26, 2025).
Closer cooperation between the countries of the EU and the Indo-Pacific Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) trade bloc has been suggested by a number of specialists. However, this does not look to be imminent.
