The United States over the weekend threatened the European Union with 30 percent tariffs, jolting Brussels just as it thought a transatlantic trade deal was close.
The bloc still hopes an agreement can be struck before the August 1 deadline, when the punitive US tariffs are set to kick in. But it has prepared countermeasures, raising the specter of a trade war with serious consequences for the world economy.
It’s fair to say Donald Trump’s announcement on July 12 -- imposing a blanket 30 percent duty on all imports from the 27-nation bloc -- came as a major shock.
Ever since the US president first threatened the EU -- and most other global trading partners -- with hefty trade measures in early April, Brussels has been keen to find some sort of compromise.
EU diplomats and politicians believe a transatlantic deal was tantalizingly close, hinting that something like a 10 percent baseline tariff could be agreed, with exemptions and quotas for various industries that could be worked out at a later stage.
Speaking on condition of anonymity, they said they view the sudden U-turn from the White House as a “negotiating tactic” aimed at securing a better deal, particularly for US tech companies facing increased European taxes.
There’s still hope in the EU that something can be agreed as the August 1 deadline looms -- even if it’s only another postponement of a few months.
The goal is to go back to 10 percent tariffs or something close to this figure, with 15 percent seen as the absolute maximum the EU would be willing to accept without pursuing retaliatory measures.
Billions In Countermeasures
And in the meantime, the European Commission has been working precisely on those countermeasures. In fact, it’s been compiling a 200-page inventory of US goods that could be targeted.
Approved by EU trade ministers during a Brussels meeting on July 14, the commission is proposing 72 billion euros ($84 billion) in countermeasures, targeting everything from aircraft, car parts, and alcoholic beverages like bourbon, to smaller items such as cigarette lighters and smoking pipes.
This comes on top of another raft of countermeasures worth 21 billion euros ($24.5 billion) prepared in response to US duties on European steel and aluminum that are set to kick in on August 6.
Given that the initial retaliatory proposal seen by RFE/RL totaled nearly 100 billion euros ($116 billion), this shows the bloc is very eager not to appear too aggressive toward Washington.
A deal is still the desired outcome, not a tit-for-tat escalation -- and for good reason given the EU's export-oriented economy.
While there’s no definitive calculation yet of how a full-blown transatlantic trade war would hit the European and US economies, EU Trade Commissioner Maros Sefcovic has warned that a 30 percent tariff would essentially eliminate trade between the two sides.
Fears of A Recession
That’s a stark prospect, considering EU-US bilateral trade in goods and services was worth 1.68 trillion euros ($1.96 trillion) last year.
That’s about a third of all global trade.
Between them, EU and US companies have invested 4.7 trillion euros ($5.5 trillion) in each other’s markets. While not all of this would unravel immediately, there’s clearly a lot at stake.
The EU’s own economists, citing the threat of tariffs, recently downgraded eurozone growth for 2025 to 0.9 percent from the 1.3 percent forecast in late 2024.
They’ve also warned of a future recession.
Germany, Europe’s economic powerhouse, had been hoping for a return to growth after two years of recession. But now it fears the latest tariffs could shave 0.5 percent off its economy this year.
Berlin believes it stands to lose 1 billion euros ($1.2 billion) in US exports every month.
This is a serious blow for a country that both imports the biggest share of US goods in the bloc and is the biggest exporter to the United States -- with its lucrative car industry being particularly vulnerable.
But it doesn’t stop with Germany and the European car industry.
Other countries and industries risk losing out too, notably luxury brands and pharmaceuticals.
Italy’s business lobby has already flagged that even a 10 percent US tariff could mean a loss of 20 billion euros ($23 billion) and nearly 120,000 jobs.
Around 90 percent of all French cognac is exported to the United States, and 53 percent of Ireland’s non-EU exports go across the Atlantic.
The rationale behind the US tariffs stems largely from the Trump administration’s belief that the EU has been “unfair” toward the United States in trade, notably through nontariff barriers such as taxes on digital services.
The tariffs are seen as a way to reduce or eliminate trade deficits -- with the current EU-US gap standing at about $50 billion in the European Union’s favor -- and to help bring manufacturing jobs back to the United States.
Outcome Still Uncertain
The jury is very much out on whether this is working or not.
The EU has been keen to point out that US exports to the European Union support 2.3 million jobs in the United States, and European investment in the country keeps 3.4 million people employed.
The biggest fear remains that the United States will be hit by lower growth and inflation.
Markets have not gone into freefall like they did in April when the US tariffs were unveiled although they have dipped again amid renewed uncertainty. Investors still believe some sort of deal might be reached.
Still, US economic growth is expected to slow down in 2025 compared to last year. And while inflation still isn’t particularly high, the costs of any tariffs will eventually hit consumers.
While transatlantic trade will continue, though likely in reduced volumes, it’s very telling that European Commission officials have been traveling the globe to strike potential free trade deals.
The commission hopes to soon finalize agreements with Australia and India -- and it might even approve a pact with the Mercosur trade bloc (Argentina, Brazil, Paraguay, and Uruguay), a deal that has been in the works for more than a quarter of a century.
