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Brussels is developing a two-phase trade strategy in response to the potential nomination of Donald Trump in the upcoming U.S. presidential election in November.
European officials, according to the Financial Times, have determined that a combined approach of incentives and deterrents would be most effective against Trump's promise to impose a minimum 10% tariff on imports. This could cost the EU approximately 150 billion euros annually in exports.
If Trump wins, European leaders plan to initiate talks before he takes office to negotiate increased purchases of U.S. products by the EU. Should these negotiations fail and Trump proceeds with higher tariffs, the European Commission will retaliate with tariffs of at least 50% on selected U.S. imports.
"We will seek agreements, but we are ready to defend ourselves if necessary," a senior EU official told the Financial Times.
Brussels has targeted goods favored by Trump's core supporters, including bourbon, Harley-Davidson motorcycles, and speedboats. These tariffs, temporarily lifted under a current agreement with the Biden administration, are set to expire in March.
European Trade Commissioner Valdis Dombrovskis emphasized the importance of U.S.-EU collaboration, especially given the current geopolitical climate, but noted, "We have defended our interests with tariffs and we are ready to defend them again if necessary."
Despite efforts to address trade imbalances, the EU's trade deficit with the U.S. grew to 152 billion euros in 2020 from 114 billion euros in 2016. The deficit has remained stable under Biden, at 156 billion euros in 2023. The EU has been importing large quantities of LNG from the U.S. to replace Russian imports following the invasion of Ukraine.
European officials acknowledge the challenge of significantly increasing U.S. exports, which are typically less valuable than EU exports, dominated by consumer goods. Meanwhile, the EU exports high-value items like pharmaceuticals, cars, and luxury food and beverages. The U.S. economy is growing at twice the rate of the EU's, further straining demand on the continent.
Goldman Sachs chief economist Jan Hatzius recently predicted that a tariff war would impact the EU more severely, reducing GDP by 1% compared to 0.5% in the U.S., while increasing inflation by 1.1% in the U.S. and 0.1% in the EU. European officials hope Trump will avoid actions that would further raise inflation, a major concern for his voters.
