A trade war between the EU and the U.S. has erupted as a result of Trump’s new tariffs on European imports. In response to Trump’s imposing a 25% tax on steel and aluminium imports, the EU decided to retaliate. It did so by ending the suspension of a series of tariffs that were imposed during the previous trade dispute between Trump and the EU, including for example a 50% tariff on bourbons, whereby it deliberately aimed at hitting Republic-leaning U.S. states. It did not take Trump long to hit back at the EU for this, threatening to impose a 200% duty on imports of wine and spirits from the European Union.
The obvious strategy for the EU here should be to propose a reduction of European protectionism, but instead, the EU is coming up with its own tariffs, which EU taxpayers will need to pay for. After all, in many areas, the EU is currently more protectionist than the U.S.—for example in terms of trade in cars or agricultural products.
A Bank of America study even estimates that the U.S. has lower tariffs not only than Europe’s leading economies but also than Japan and Mexico, when you consider both tariff and non-tariff barriers. Non-tariff barriers include burdensome rules of origin and quotas, but also regulations, which happen to be a specialty of the European Union.
Apart from failing to close a lot of new trade deals, in recent years, the EU has been introducing a whole range of new protectionist measures, effectively going backward when it comes to the cause of free trade. There is the Carbon Border Adjustment Mechanism (CBAM)—a new climate import tariff—as well as a whole host of new EU regulations that impose bureaucracy on trading partners, ranging from requirements for importers to map out their own supply chains to new rules to combat deforestation. The latter is also angering trading partners other than the U.S., from Brazil to Malaysia, a major exporter of palm oil. That country finds it unfair that despite its own progress in the area of deforestation—something that was praised by NGOs—the EU still refuses to recognise the Malaysian deforestation standard MSPO as equivalent. It is especially absurd now that this standard is becoming stricter than European standards.
Meanwhile, the American paper industry is asking Trump to force the EU to declare America ‘deforestation-free’, while CBAM is complicating a dispute over import tariffs for steel that has been raging since Trump’s first term. In all likelihood, Trump will demand that the EU scrap these kinds of trade barriers if the Europeans want to avoid or mitigate his new import tariffs.
U.S. Commerce Secretary Howard Lutnick has warned that the U.S. may well use “trade tools” to retaliate against European environmental, social, and governance regulations that affect American companies. The European Commission may be dragging its feet when it comes to scrapping parts of its burdensome green policies, but perhaps a trade war will force it to do so.
The EU’s digital regulation is also being challenged by the Trump administration, especially given that the EU has been going after U.S. big tech in a savage way. Additionally, the EU is using its ban on state aid as a tool but is increasingly lenient in enforcing it against its own member states. One of many examples is Apple being required to pay a huge €13 billion in back taxes to Ireland, as its tax agreement with the Irish government was supposedly not fully transparent to competitors. A grey zone, admittedly, but it is evident that the EU is much more lenient with the numerous violations of its state aid ban by member states when there is no opportunity to milk U.S. big tech. Because of this, Trump has attacked EU competition policy cases against American companies as “a form of taxation.”
The EU also ought to consider the UK, which is not going to follow the EU’s response to hit back at Trump with tariffs—unlike in 2018, when the UK was still shackled to the EU’s trade policy. Instead of retaliating with tariffs on U.S. goods, UK Business and Trade Secretary Jonathan Reynolds said that the UK government’s “priority is engaging constructively, pragmatically and trying to find a solution,” adding: “That’s what standing up for industry means.”
Protectionism is a lose-lose game, and even if the EU would be more protectionist than Trump—a matter for academic discussion, dependent on the statistics used—that still does not justify Trump going after allies, imperfect though they may be. Given that the EU is not voluntarily addressing its own protectionist practices, it’s hard to overlook. With Trump, there is always a deal to be made.
