How Europe plans to resist Trump’s threats of tariffs ...Middle East

Donald Trump has a crude understanding of trade. “Trade tariffs are the greatest,” he has said, adding that “tariff” is “the most beautiful word in the dictionary.”

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.

Despite campaign promises, Trump did not impose any new trade tariffs on the first day of his second term. Still, he laid out plans for an “America First Trade Policy”, calling on federal agencies to review “unfair trade practices” by 1 April.

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.

In Brussels, EU officials have been bracing for his presidency, wargaming scenarios and preparing a united front that includes a carrot-and-stick approach to his tariff threats. The carrot is the offer of buying more US products, and even negotiating a new trade deal, with the stick of retaliatory measures on American trade.

Here’s how Europe could navigate Trump’s tariff threats under six key strategies.

Having weathered one Trump term involving hefty tariffs, European countries are more prepared this time for another round of trade threats. They need not panic. They should take a deliberate and tactical approach, waiting to see what he does – and not overreact to his bluster (or even the antics from his entourage, like his tech billionaire ally Elon Musk).

“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

Trump does not readily take advice from outsiders, especially the EU. But EU leaders should underline the scale of the transatlantic trade relationship, the economic damage from a trade war, and specifically, how it would hurt American consumers most of all, driving up the cost of living, which Trump has promised to bring down.

The UK now has one Trump card: Brexit

EU-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.”

One of Trump’s gripes about the EU is that it has a trade surplus with the US (although only in goods; Trump seems to ignore the US surplus in services). Given his transactional view of trade – and his love of dealmaking – the EU could offer to buy more American goods.

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.

The advantage of this offer is that it aligns with Europe’s existing energy and defence priorities, particularly as it phases out Russian energy dependence and boosts its military support for Ukraine.

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

German conservative leader Friedrich Merz, likely to be his country’s next chancellor, says the EU should propose a new trade agreement with the US. An all-encompassing deal would probably be impossible to negotiate over Trump’s second term, but officials say the President could bask in an aura of just announcing plans for the biggest trade pact in history.

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.

Any EU offer to buy more US goods should be backed up by a credible threat to retaliate robustly if Trump goes ahead with tariffs. If there is a full-blown trade war, the EU will have retaliatory tariffs ready: a “negative list” of US products drafted to mirror Trump’s proposed tariffs could serve as a deterrent.

“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)

The EU has experience in politically targeted tariffs: in 2018, it imposed duties on bourbon, power boats and Harley-Davidson motorcycles from Republican states after Trump introduced tariffs on steel and aluminium imports from the EU. Officials say they would have to hit back fast and hard to bring Trump back to the negotiating table.

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).

A united front should include the UK. For all Sir Keir Starmer’s hopes that the UK is spared the tariff blitz, Trump could hit British exports just as hard as the EU. A prudent British survival strategy could be to revive ties with the EU, where the potential economic gains would outweigh any benefits from a US deal.

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)

“The best way to deal with Trump is to make our own bed and make us more of an attractive partner,” says Fredrik Erixon, founding director of the European Centre for International Political Economy (ECIPE). “A Europe that becomes serious on economic growth and innovation, and that starts to spend seriously on defence and military capacity will become far more interesting for partners and far more worrying for enemies.”

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.

Diversification would both spread risk and reinforce the EU’s position as a global trade leader.

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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