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Germany’s outgoing chancellor, Olaf Scholz, labeled the new Trump tariffs as fundamentally flawed.
Spain’s Prime Minister, Pedro Sánchez, criticized it as a unilateral attack.
French President Emmanuel Macron described the tariffs as brutal, baseless, and likely to impact the European economy significantly.
He called an emergency meeting with French businesses most affected by the newly established 20% tariffs on EU goods exported to the US, urging European businesses not to invest in America until matters are clarified.
“What message would we send by allowing major European investors to sink billions into the American economy while the US is penalizing us?” he questioned.
Sectors like wine, champagne, and aeronautics in France, the automobile industry in Germany, and luxury goods in Italy are highly at risk due to these US import taxes.
In general, the chemical, machinery, and equipment sectors in the EU are considered most susceptible to the tariffs.
Upon closer inspection, other EU sectors dependent on the US market might surprise many. For example, French cognac, often seen as an old-fashioned drink in Europe, is favored by many American rappers, with over 40% of French brandy exported to the US.
Spain also sends significant amounts of gas turbines and olive oil to the US.
Which EU countries are most impacted?
Examining which EU countries are most vulnerable to the US based on GDP reveals unexpected outcomes.
Ireland heavily relies on the US for goods and services, with exports primarily linked to pharmaceuticals (currently exempt from the 20% tariffs pending an increase in US production) and technology, constituting a fifth of Ireland’s GDP.
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Countries like Cyprus, Luxembourg, and Malta are particularly vulnerable in terms of service exports.
Belgium, the Netherlands, and Slovakia share similar concerns regarding goods.
Germany exhibits a greater dependency on the US than other leading EU economies, with over 5% of its GDP at risk, followed by Italy (about 4%), France (3%), and Spain (just over 2%). These stats were gathered in 2024 by CaixaBank research using Eurostat data from the previous year.
Will the EU respond?
The EU’s response to the new US tariffs is being coordinated from Brussels. The European Commission manages all major trade issues affecting the bloc’s members.
Commission President Ursula von der Leyen asserts that they have many strategies at their disposal, including negotiation power and the capacity for retaliatory measures.
While the US economy is robust, constituting 25% of global GDP, the EU’s single market, home to 450 million people, is comparably significant at 22% of global GDP.
Therefore, the EU possesses considerable leverage to retaliate against Trump’s tariffs, especially if they target US services, such as big tech firms which may include Apple, Meta, Amazon, and even Elon Musk’s platform X.
However, this approach might trigger further ire from the Trump administration. The EU is keen to avoid escalating tensions.
Politically, the EU’s options are more limited than anticipated. For instance, the EU has been purchasing LNG from the US after reducing its reliance on Russian gas due to the ongoing conflict in Ukraine. It would be challenging to decrease or impose heavy taxes on these imports without negatively impacting EU consumers and straining relations with the US.
Given the multiple disputes over defense spending and Ukraine, the EU is eager to avoid exacerbating its economic woes due to Trump’s tariffs, as it seeks to steer clear of a trade conflict with its once close ally.
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Thus, the strategy from Brussels is to threaten significant retaliation, desire Donald Trump to reconsider, and hope he reverses the tariff decisions.
The EU’s trade commissioner, Maros Sefcovic, has plans to engage with his US counterparts on Friday. This is their opening move; the EU is not rushing to retaliate.
What could the EU propose to the US in negotiations?
The Trump administration has barred any country from negotiating out of the impending tariffs before they take effect this weekend. However, once they do, what might the EU offer to persuade Trump to reconsider?
Trump has been furious about the EU’s substantial trade surplus, which has amounted to around $200bn (€180bn; $153bn) in 2024, showcasing a significant imbalance where the EU sells considerably more to the US than it receives.
Conversely, in the realm of services, the US’s sales to the EU outnumber those going the other way. This is why the EU contemplates leveraging services like banking and technology in its retaliatory response to the US.
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To address the goods imbalance, the EU might agree to procure more liquefied natural gas (LNG) or military hardware from the US, following its commitment to enhance its security capabilities.
However, this would conflict with another EU intention to bolster its own arms industry by prioritizing European suppliers for rearmament. The US has already raised objections to this plan, making it a complicated option.
Brussels could also reduce tariffs on American goods or forfeit quotas on US agricultural products.
Yet, complying with another demand from the US to loosen its stringent digital regulations, which aim to limit monopolistic practices and impose content moderation in the EU, is something the EU would be reluctant to accept.
How severe could the situation become?
EU officials are contemplating the implications of a potential collapse of the international trading system.
European businesses fear being inundated with inexpensive goods from non-EU nations adversely affected by Trump’s tariffs and looking to market their wares elsewhere.
The threat is particularly pronounced concerning China, as Trump has imposed tariffs exceeding 50% on goods from Beijing.
Would the EU then feel compelled to escalate its import tariffs on Chinese products for its own defense, potentially igniting an unintentional trade dispute with China?
These are anxious and highly unpredictable economic times.
For this reason, the European Commission emphasizes a focus on factors it can regulate—if EU capitals agree—such as eliminating internal barriers within the EU single market.
These barriers, such as varying tax regimes imposed by different countries, significantly impact the EU’s overall economic growth and international competitiveness.
The IMF estimates these barriers equate to a 45% tariff on EU manufacturing and a staggering 110% for services, far surpassing the tariffs currently levied by Trump against the EU.
EU nations affirm their unity in combating these internal challenges, although they remain divided on the completion of their own internal market.
