photo by Michael Prewett on Unsplash

Tariffs

On Wednesday evening, the world finally witnessed the long-announced “Liberation Day”: US President Trump announced across-the-board tariffs of at least 10%, although most countries will be affected by even higher tariffs. While many commentators highlight the insanity of these measures and their consequences for America - as Michael Strain in a FT op-ed here: “Unfortunately, it [Liberation Day] threatens to liberate Americans from robust real wage growth, low unemployment and a good chunk of their retirement savings.” - we want to summarize briefly what this all means for Europe and transatlantic trade.

The EU will be hit with a flat tariff of 20% on all exports to the USA. This is in addition to the 25% tariffs on cars, car parts, steel and aluminum that the US government announced last month. After an estimate from the European Commission, exports in the volume of €380 bn would be affected by the combined tariffs. However, it is not yet entirely clear whether these tariffs will be added together or whether certain products will be excluded, as this brief WSJ overview shows. Early estimates predict that Trump’s policies will lower the EU’s GDP growth around 0.2% in the next year.

The European reaction

The first question that arises is whether the EU will react with extensive counter tariffs. Unlike China, however, which has already announced counter-tariffs to the American tariffs at the same level (34%), the EU Commission appears to be somewhat more cautious:

“We are now in a very different ballpark, to use U.S. terminology here,” a second senior Commission official said, comparing the new 20 percent tariff to the more specific duties Trump announced previously. “And so that requires more work, more analysis, more consultation.”

An EU diplomat told POLITICO “we're not in a rush” to retaliate. [POLITICO]

As with previous tariff announcements, Commission President Von der Leyen has emphasized that she believes the Trump policies are a mistake and that the EU will respond united and from a “position of strength”. At the same time, however, she also emphasized that it is not yet too late for negotiations.

Other European leaders were critical of Trump’s move, too: even Italian prime minister Girogia Meloni, who is considered one of Trump’s main allies in Europe, condemned the tariff policies as wrong. French president Emmanuel Macron called the tariffs “brutal and unfounded” and said that EU companies should pause investments in the US for a while.

A two-step response

As reported in the last weeks, the EU already planned on reacting to the tariffs levied on aluminium and steel by re-establishing so-called “rebalancing measures” used during Trump’s first term. These mainly consist of tariffs on specific US products like jeans, bourbon and motorcycles.

However, the second step, the potential reaction to the new tariffs, is where it gets interesting: while the immediate reaction of the Commission was cautious as described above, there are voices that argue that the EU should use its “anti-coercion instrument” as response to the new US policies. Here a brief explanation what this instrument is:

The tool, which was drawn up during Trump’s first term and subsequently used as a deterrent against China, allows the EU’s executive arm to impose restrictions on trade in services if it determines that a country is using tariffs on goods to force changes in policy.

Trump’s threat to use tariffs to coerce Denmark to hand over Greenland and to press the EU to drop enforcement action against US technology companies would qualify, officials said. [FT, February 5]

The anti-coercion instrument allows retaliatory measures, such as revoking the protection of intellectual property rights or their commercial exploitation through, for example, software downloads and streaming services.

Brussels could also block foreign direct investment or restrict market access for banking, insurance and other financial services groups. [FT, April 4]

Using this instrument is not uncontroversial, though, as this FT article shows. Some European leaders fear that it will only worsen trade wars. To pass it, a qualified majority of 55 percent of the EU’s twenty-seven member states representing 65 percent of the union’s population would be necessary.

Besides the “anti-coercion instrument”, the Commission will send a list of potential retaliation measures to all member states on Monday. A vote on these is expected to take place on April 9.

Changing EU-China relations?

Trump's tariffs will undoubtedly influence the international trade structure. In the face of a potential loss of the American market, European exporters could orient themselves even further towards China. However, as the EU-China relationship has not necessarily been rosy in recent years, the respective trade relations could even deteriorate further, as this NYT article points out:

Filling a U.S.-shaped void with China, while mathematically obvious, would be tricky. China and the E.U. have been moving further apart in recent years, with declining trade flows, and regular accusations by the E.U. that China is using trade practices that distort the market.

[…]

[W]hen Mr. Trump’s tariff announcements came out this week, a flood of cheap goods coming from Asia was an immediate concern.

“We will also be watching closely what indirect effects these tariffs could have, because we cannot absorb global overcapacity, nor will we accept dumping on our market,” Ms. von der Leyen warned in her televised response on Thursday to the Trump tariffs. [NYT]

The EU also seems to expand relations with other countries in a push to open up new markets, for example with India as this POLITICO article shows.

Defense

coalition of the willing meeting

Preparing for today’s meeting of the so-called “coalition of the willing” of countries that are willing to commit military forces to uphold a potential peace in Ukraine, Ukrainian President Volodymyr Zelenskyy laid out three ways these country could help Ukraine: either deploying ground troops, patrolling and securing Ukrainian airspace or sending military ships to the Black Sea. He also announced today that the coalition will from now on meet in a regular, weekly format.

UK-EU defense fund

Apparently, officials from several European states as well as from the UK met last week to discuss a potential new defense fund that would sidestep similar initiatives by the European Commission. It would thus allow non-EU countries like the UK and Norway to participate in joint defense procurement.

At the center of the pitch was a proposal from the U.K. Treasury, detailed in a discussion paper seen by POLITICO, that would allow participating governments to avoid booking the upfront capital cost of military kit in their national budget, which would be of huge benefit to countries with tight spending rules. [POLITICO]

This FT article explains the plan in more detail.

Miscellaneous

EU regulators targeting X

Regulators are preparing penalties that could surpass a fine of $1 bn, against Elon Musk’s social media platform X.

Last year, European regulators concluded that X was violating the law by refusing to provide data to outside researchers, making it difficult to measure how disinformation and other harmful material spread on the service. The authorities also believe X has failed to provide adequate transparency about advertisers, or to verify the authenticity of users who pay to have a “verified” account, making the platform more vulnerable to abuse and foreign interference. [NYT]

Other American tech companies like Meta, Apple and Google face investigations, too.

Le Pen conviction

French far-right politician Marine Le Pen has been banned from running for political office in the next five years, due to a court ruling that found her guilty of embezzling EU funds. That means she will not be able to run for the presidency in the next French elections in 2027. She already announced that she will file an appeal.