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Tariffs

EU Holds Back on Retaliation Against US in Trade Dispute

Strategic Insights

— 1 min read

The European Union has decided to hold back on retaliation against the United States in a trade dispute, despite a 30% tariff imposed by the US from 1 August. The EU's strategy is to focus on finding a reasonable compromise, which makes economic sense, but the political fallout of the EU's reticence and perceived weakness could be immense. The original Brussels strategy in talks with the US was to aim for a "0% for 0%" tariff agreement, considering the overall transatlantic trade balance, including services as well as manufactured goods.

Key Takeaways:

  • The EU's proposed retaliatory list, including US goods such as aircraft, alcohol, and food, originally amounted to a value of €72bn, but may never come into effect.
  • The US is applying tariffs on about €380bn of annual imports from the EU.
  • The EU has stepped up the pace in talks with Australia, New Zealand, and India, and has launched negotiations with the UAE.
  • The European Commission has proposed deepening relations and exploring the possibility of developing a new World Trade Organization.
  • Ratification of the free trade deal with the Mercosur bloc remains stuck.
  • European countries are divided between doves and hawks, with the doves prevailing so far, which may lead to the EU bending to breaking point.
  • A bad deal with the US could be a significant unravelling of European integration and may lead to a tilt towards nationalism and the far right.

Statistics:

  • €200bn: the EU's trade surplus with the US in goods per year.
  • €150bn: the EU's trade deficit in services with the US per year.
  • €21bn: the value of potential counter-tariffs drawn up to hit US exports annually.
  • €95bn: the original value of the European Commission's additional retaliatory list, including US goods such as aircraft, alcohol, and food.
  • €72bn: the revised value of the additional retaliatory list.
  • €380bn: the value of US tariffs on EU imports per year.
  • 10%: the original 10% tariff rate proposed by the US.
  • 30%: the new 30% tariff rate imposed by the US from 1 August.

Sources:

  • The Guardian: "The Guardian view on Europe's Trump challenge: Brussels must hold its nerve and think big | Editorial".
  • Reuters: "EU's Von Der Leyen Warns Trump on Tariffs, Economic Damage".

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