EU Prepares Trade Plan for ‘Showdown’ with Donald Trump

Brussels is developing a two-step trade strategy to deal with Donald Trump, offering the Republican a quick deal if he wins a second term as president and targeted retaliation if he opts for punitive tariffs, writes the Financial Times.

EU officials believe the ‘carrot and stick’ approach is the best response to Trump’s promise to impose a minimum tariff of 10 percent, which they estimate could reduce EU exports by about 150 billion euros annually.

Negotiators plan to meet with Trump’s team if he wins the election in November, before he takes office, to discuss which American products the EU could purchase in larger quantities. If trade improvement talks fail and Trump imposes higher tariffs, the European Commission’s trade department is compiling lists of imported products that could be hit with tariffs of 50 percent or more.

Trump’s first term from 2017 to 2021 was painful for the EU, which has a significant trade surplus with the US. After Trump imposed tariffs on 6.4 billion euros of steel and aluminum imports from the EU in 2018 for national security reasons, the EU retaliated by rebalancing tariffs worth 2.8 billion euros.

In designing measures, Brussels decided to target Trump’s core voters (Republicans) with high tariffs on bourbon whiskey, Harley-Davidson motorcycles, and motorboats. These tariffs have been suspended until March, as part of a temporary agreement with the Biden administration to pause tariffs on metals.

Valdis Dombrovskis, the EU Trade Commissioner, told the Financial Times that he hopes the two sides can avoid a repeat of the last ‘conflict’.

– “We believe that the US and the EU are strategic allies, and especially in the current geopolitical context, it is important that we work together on trade. However, we have defended our interests with tariffs and are ready to defend our interests again if necessary,” said Dombrovskis.

The Latvian called for cooperation and said that Brussels is open to ‘targeted agreements’ to reduce the trade deficit of 156 billion euros.

During Trump’s first term, Brussels initially reached an agreement on lobster, a key product from the state of Maine, which Trump wanted to win in the 2020 presidential election. Additionally, the EU lifted tariffs on imports of live and frozen American lobsters — as well as for all other countries without a trade agreement, in accordance with global trade rules. In return, the US halved tariffs on a range of products, including crystal glasses and cigarette lighters. Further agreements followed on beef and soy to appease Trump’s voters in the Midwest.

Despite this, the annual US trade deficit rose to 152 billion euros in 2020 from 114 billion euros in 2016. Since Russia’s invasion of Ukraine in 2022, the EU has been importing large quantities of liquefied natural gas to replace supplies from Moscow. The US deficit remained stable under President Joe Biden, reaching 156 billion euros in 2023. However, EU officials warn that it is difficult to significantly increase exports from the US, as they are usually less valuable than exports from the EU. Goods dominate, while the leading EU export products are pharmaceuticals, cars, and expensive food and beverages, such as champagne.

The EU economy is also growing at less than half the rate of growth in the US, which reduces demand.

Jan Hatzius, chief economist at Goldman Sachs, recently predicted that a trade war would hurt the EU more than the US. It would cost 1 percent of the EU’s GDP, compared to 0.5 percent of the US’s. However, it would also add 1.1 percent to the inflation rate in the US, compared to 0.1 percent in the EU.