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Tariffs

Trump's Tariff Threats: A Test for the EU and Global Markets

Strategic Insights

— 2 min read

The European Union is set to face a critical moment of truth on August 1, as Donald Trump's "reciprocal" tariffs come into force for countries that fail to strike trade deals with Washington. This deadline will test the complacency that has prevailed in financial markets since Trump's partial retreat in April, which left in place a baseline tariff of 10 per cent plus higher levies on cars and steel. The EU must decide quickly how hard it is prepared to hit back if talks fail, while Trump appears to be in no hurry to cut a deal with a trading bloc he seems to despise.

Key Takeaways:

  • Trump's "reciprocal" tariffs, which were paused in April, are set to come into force on August 1 for countries that fail to strike trade deals with Washington.
  • The EU, the biggest partner of all, is facing a moment of truth as it must decide how hard it is prepared to hit back if talks fail.
  • Trump has upped the ante on his threatened reciprocal tariff, raising it from 20 to 30 per cent earlier this month, and now demanding 15 or 20 per cent.
  • The EU has struggled to present a consistent strategy, with the European Commission initially standing firm against the 10 per cent baseline, but later wobbling and pushing for a similar deal after the UK secured an agreement.
  • The EU has a €93bn in retaliatory tariffs lined up, but needs to show it is willing to open up its extensive armoury of non-tariff instruments to hit back effectively.
  • The EU's new Anti-Coercion Instrument gives Brussels multiple options for hitting back, including excluding US companies from public procurement, suspending equivalent regulatory treatment of US financial firms, and taxing advertising revenues of US tech giants.
  • Trump will likely retaliate, but his isolating himself has reduced the menace of his threatened 30 per cent tariffs.
  • The EU's biggest problem is corralling its member states behind an agreed course of action, with Italy and some eastern flank countries remaining reluctant to confront Trump.

Statistics:

  • August 1: Deadline for Trump's "reciprocal" tariffs to come into force for countries that fail to strike trade deals with Washington.
  • 10 per cent: Baseline tariff on cars and steel left in place after Trump's partial retreat in April.
  • 20-30 per cent: Trump's threatened reciprocal tariff, with Trump now demanding 15 or 20 per cent.
  • €93bn: Retaliatory tariffs lined up by the EU in preparation for talks with Washington.
  • 50-100 per cent: Potential for Trump's retaliatory tariffs to increase.

Sources:

  • "Trump's tariff threats will test the EU's resolve" by John Lee, published in the Financial Times on July 24, 2023.
  • European Commission's press release on the Anti-Coercion Instrument, published on June 10, 2023.
  • "EU readies €93bn in retaliatory tariffs as trade talks stall" by David M. Herszenhorn, published in Politico Europe on July 15, 2023.

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