Consequences of a trade war : fragmentation or union ?
On the 11th of February, President Donald Trump announced that in March 25% tariffs will be implemented 25% tariffs on steel that enters the US. This will affect Canada and Mexico but also the EU that exports. The US represents almost 20% of the EU steel exports which makes it one of the most valuable partners. Added to the 10% tariffs on aluminium planned by Donald Trump, this could affect $6bn of EU exports.
This announcement confirms the will of Donal Trump to implement its tariffs policy. Ursula Von Der Leyend already told the press that the EU will not let this situation be “unchallenged”.
In the context of Trump showing expansionist views against Denmark, the EU reaction to tariffs would be an essential component for ensuring credibility on the international scene. Nonetheless, there are still question marks about what will follow the implementation of these tariffs (if implemented). In fact, 2 types of situations could arise with Trump’s tariffs policy and could lead to different responses.
If the tariffs planned by the US for the EU are blanket tariffs—meaning they apply to an entire sector without distinguishing between specific goods—this could encourage the EU to unite and respond with a coordinated strategy. On the other hand, sector-specific tariffs could spark competition among European countries. For instance, if the US were to impose tariffs on French wines but not on Italian wines, Italian wine exports could gain market share in the US, making it more difficult for the EU to adopt a unified policy stance.
As the European Commission has the competency on international trade, this is up to the commissioner to decide which will shape the EU policy position.
European retaliation: targeting symbolic and strategic products
First of all, if the EU decides to retaliate, this has to be strategically to take advantage over the US.
In June 2018, the EU had implemented tariffs on imported products from states that voted at the majority for Trump. It targeted Harley Davidson based in Wisconsin and Bourbon whisky in Kentucky for instance. These tariffs were suspended until the end of march 2025 after an agreement was struck with Joe Biden. Nevertheless, they have not been removed from the EU law. Therefore, the EU could simply reinstate these as a part of the trade war with the US.
Tariffs could also be applied to strategic sectors highly valuable for trade to the US. For instance, chemicals are a highly valuable product for trade between the 2 entities as the US imports majoritarily chemicals from Ireland ($37bn) while Belgium imports almost $20bn of chemicals per year form the US. Chemicals are a highly strategic sector as some products cannot be replaced. Other sectors also have strategic products but in this context the EU has a strategic advantage as it relies only on 8 strategic products (mainly chemicals) while the US relies on 32 strategic products from the EU including chemicals, pharmaceuticals and defence. The EU could therefore try to leverage this situation in negotiations.
Finally, the EU could apply taxes on digital services to undermine their economic performances. In fact, the EU is a net importer of services from the US with a $104bn deficit in this context. The sector of services is large but tech giants accounts for a large part (approximately 10%) of all the services imported in the EU from the US. Implementing taxes to these big companies with an important economic power in the US could influence the situation in favor of the EU. As the EU also has a large market of 500 millions of customers with a high purchasing power compared to the rest of the world, it could take advantage of the value of its market to tax more giant tech companies that benefit from the European market.
The decision making process : a vulnerability of the EU
Beyond policy solutions and targets for tariffs it is nevertheless essential to look at the decision making mechanisms and their efficiency and adaptability to implement the solutions previously discussed.
Firstly, in December 2023, after China imposed trade sanctions against Lithuania after the country authorized Taiwan to open a de facto embassy in the country, the EU decided to adopt a mechanism to face attempts of coercion realized by other countries. The Anti Coercion Instrument (ACI), is designed to allow a common reaction as the common commercial policy falls under the Commission competencies. If triggered, it allows the implementation of tariffs, customs controls, quotas and restrictions to participate in public procurement procedures for instance.
To be triggered the ACI must be supported by 15 out of 27 member states representing 65% of all the EU population. Nonetheless, because it needs large member state support, it is vulnerable in 2 ways. Firstly because its implementation will require a negotiation at the EU level which therefore causes latency in the decision making process which can be an issue in the case of tariffs imposed on highly vulnerable sectors (sectors in struggle for instance like agriculture) that need immediate reaction. Furthermore, states which are imposing the coercion could try to influence the decision making process by pressuring member states to slow or even undermine the implementation of this mechanism.
Therefore, even though the ACI is designed to react under a common policy to coercion which is essential, it has its vulnerabilities which can undermine its application.
Avoiding the trade war could mean more expenses for European member states
It is however possible to avoid this situation. In fact, the origin of Donald Trump’s will to implement tariffs is the trade deficit with the EU. Which means that if the EU shows it will take action to buy more American products it will maybe avoid tariffs war. In fact Donald Trump mentioned on its social media Truth Social in December 2024 : “I told the European Union that they must make up their tremendous deficit with the United States by the large scale purchase of our oil and gas”.
Beyond oil and gas, Donald Trump, as he asked in January to NATO countries to increase their expenditures on defence up to 5% of their GDP, could in this context also accept that the EU buys more US military material to “make up” for its deficit. Finally, beyond purchases of US products, the EU could decrease tariffs on American cars as it is set at 10% while tariffs for European cars to the US are only at 2.5%.
All these measures could avoid a trade war with the US that could hurt the EU more than the US. In fact, in 2024 the EU GDP only grew by 0.9%, following the trend of 2023 (0.3%), while the US GDP grew by 2.5% in 2024 and 2.9% in 2023. This gap in economic strength could therefore advantage the US in this trade war as it has room to suffer a slight decrease in growth which is not the case for the EU.
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