US President Donald Trump recently escalated trade tensions with the EU. He threatened to increase the import duty on all products from Europe to an unsustainable 50%. This announcement follows a series of bilateral trade negotiations that have largely confused and frustrated parties on both sides. Leaders from across Europe have been urging a return to a healthier, more dignified state of trade dialogue.
In April, Trump released his plan for “reciprocal tariffs” on countries across the world. The time this strategy consisted of a big 20% tariff on nearly all products from the EU. This extremely high conversion rate was subsequently lowered to just 10% until the end of the concession on July 8. The truth is that the EU has a massive trade surplus with the US. Trump attributes this trade deficit to what he describes as unfair practices that put American companies at a competitive disadvantage. His administration has made specific complaints about EU practices involving automotive and agricultural products.
EU Trade Commissioner Maroš Šefčovič’s reply to Trump’s bluster showed an understanding of the deeper strategic principles that should underpin any healthy and productive trade relationship. He stated, “EU-US trade is unmatched & must be guided by mutual respect, not threats. We stand ready to defend our interests.”
The trade negotiations have also been thrown into flux by Trump’s mounting aggravation at the speed of progress on talks. He remarked, “Our discussions with them (the EU) are going nowhere,” indicating his dissatisfaction with the current state of affairs. For example, Trump has said he would slap a 25% import tax on smartphones not manufactured in the US. This change would create a much broader universe of possible tariffs.
Dutch Prime Minister Dick Schoof voiced support for the EU’s strategy in the ongoing trade talks, noting that “we have seen before that tariffs can go up and down in talks with the US.” French Foreign Minister Laurent Saint-Martin once again affirmed the EU’s support for de-escalation. He pointed out that Europe will be prepared to act in the event that situation changes. He said, “We are maintaining the same line: de-escalation, but we are ready to respond.”
Warnings about the economic impact of increased tariffs have been sounded throughout Europe. Irish Taoiseach Micheál Martin emphasized the importance of negotiations, stating, “We do not need to go down this road. Negotiations are the best and only sustainable way forward.” Other European officials such as Katherina Reiche have supported this sentiment calling for a negotiated agreement with the United States.
The market reaction to these rising conflicts has been decidedly pessimistic, with stocks in the United States and Europe declining. The S&P 500 lost about 0.7%, with both Germany’s Dax and France’s Cac 40 down more than 1.5%.