Heading into last year’s US election, he threatened tariffs of 10 to 20 per cent on imports from friends and foes alike, including the European Union.
His initial targets are China, Mexico and Canada, but his ire will likely fall on Europe soon. “They don’t take our cars. They don’t take our farm products. They sell millions and millions of cars in the United States. No, no, no, they are going to have to pay a big price,” he complained last October.
Donald Trump has said ‘tariff’ is ‘the most beautiful word in the dictionary’ (Photo: Carlos Barria/Reuters)Here’s how Europe could navigate Trump’s tariff threats under six key strategies.
“Cool heads are needed,” German Chancellor Olaf Scholz said in Davos on Tuesday. “It is perfectly clear that President Trump and his administration will keep the world on tenterhooks in the coming years.”
2. Talk to him
The UK now has one Trump card: Brexit
Read MoreEU-US trade is massive: some €1.5trn (£1.3trn) in goods and services in 2023. “No other economies in the world are as integrated as we are,” European Commission President Ursula von der Leyen said in Davos on Tuesday. “Our first priority will be to engage early, discuss common interests, and be ready to negotiate. We will be pragmatic, but we will always stand by our principles.”
This was suggested by European Central Bank president Christine Lagarde last year, saying Europe should have a “chequebook strategy” in which it offered “to buy certain things from the United States,” such as liquefied natural gas (LNG) and defence equipment.
It was also the strategy of then-Commission president Jean-Claude Juncker in 2018, who successfully talked Trump out of slapping tariffs on European cars by offering to buy more US soya beans and LNG. Although Juncker did not have the power to make this happen, he recognised a trend that was already in train.
4. Offer a new deal
If that proves too big, the two sides could hammer out measures to facilitate trade in key sectors. For example, the EU could cut its 10 per cent tariff on cars to match the US level of 2.5 per cent.
“If there is a need to defend our economic interests, we will be responding in a proportionate way,” Commission Vice President Valdis Dombrovskis said in Davos on Wednesday.
The EU imposed duties on bourbon in 2018 (Photo: Igor Golovniov/Getty)6. Stick together
Trump is inherently suspicious of the EU, describing it as “a foe” and would likely play divide-and-rule to extract concessions from member states. EU unity will be vital given the temptation to seek US favours – and the possibility that Trump would go easier on countries like Italy and Hungary, where his closest European allies are in power (or conversely, specifically target Denmark in his bid to secure control over Greenland).
Long before Trump’s re-election, EU figures recognised that the bloc’s economy needed a major overhaul to boost its competitiveness. Commission Vice-President Stéphane Séjourné has called for a “Europe first” strategy for key business sectors. Next week, Von der Leyen is expected to announce her roadmap for a green and innovative industrial policy strategy to compete with the US and China while maintaining fair competition in the single market.
Cars roll off the assembly line at the Mercedes-Benz Group AG plant in Sindelfingen, Germany, (Krisztian Bocsi/Getty)8. Diversify trade
The United States is the European Union’s biggest trade partner, but the EU has already begun working to reduce its dependence on US trade. In December, the Commission signed a massive trade deal with four Mercosur countries – Argentina, Brazil, Paraguay and Uruguay. In Davos, von der Leyen said the EU would shortly be relaunching its strategic partnership with India, and officials plan updates of their deals with Mexico and Malaysia.
9. Think of China
Trump’s main trade target is China. French President Emmanuel Macron warned last year that Trump is out to “force the Europeans to separate faster from China” by threatening duties against Europe if it keeps trading with Beijing.
If the US President slaps steep tariffs on Chinese goods, the EU could face collateral damage as a dumping ground for excess Chinese exports. In her Davos speech, von der Leyen warned of a “second China shock” triggered by “state-sponsored overcapacity” flooding European markets, depressing prices and harming local industries. She should tell Trump that the best way to take on China is to work with, rather than threaten, the EU.
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