President-elect Donald J. Trump's threats of tariffs against both allies and adversaries have raised concerns among companies and governments in Europe, leading to fears of a potential trans-Atlantic trade war.
European governments are reportedly developing proactive plans, which are more advanced than their initial responses during Trump's earlier presidency. However, internal political instability across Europe may hinder efforts to establish a united front on trade.
Recent political developments, including the collapse of governments in France and Germany and ongoing coalition formation struggles in Austria and Belgium, complicate the situation.
No consensus has yet emerged on how to address Trump's tariff threats. Diverging views exist among officials, with some advocating for retaliation against new taxes on European exports, while others prefer negotiation.
On Truth Social, Trump stated that he had informed the European Union of a need to offset its trade deficit with the United States through significant purchases of American oil and gas, warning that failure to do so would result in tariffs.
Economists caution that trade wars typically have detrimental effects on all parties involved, leading to reduced trade and economic growth. Europe's already fragile economy, weakened by the pandemic and marked by ongoing political discord, is seen as particularly susceptible to further damage.
Trump has pledged to introduce a new tax of 10 to 20 percent on all imports to the U.S., and along with targeting Europe, he has issued warnings to Mexico, Canada, China, and emerging-market nations.
Any tariffs imposed could jeopardize the significant trading relationship between the U.S. and the European Union, valued at over $1.5 trillion in goods and services for 2023. Currently, the U.S. faces a trade deficit with Europe, importing slightly more than it exports.
During Trump's previous term, he enacted tariffs on European steel and aluminum to reduce the trade deficit, but this policy resulted in an expanded gap instead.
Concerns are also rising regarding the potential repercussions of increased trade tensions between the U.S. and China, which may divert low-cost exports to Europe.
Discussions in Brussels and national parliaments are underway regarding potential retaliatory measures or alternative strategies that do not involve taxing American products.
European Commission officials are analyzing the potential impacts of specific tariffs across different sectors and countries, as preliminary talks commence on possible American products for tariff retaliation.
However, these discussions remain at an initial stage due to the lack of clarity regarding Trump’s trade policies, with no communications yet established between European Commission trade officials and member states concerning a response.
One possibility is that the European Commission could enact retaliatory tariffs similar to those implemented in 2018, targeting U.S. goods produced in regions that showed strong support for Trump.
Experts suggest offering to increase imports of energy and defense products from the U.S. during negotiations, while simultaneously preparing for retaliatory tariffs, to establish credibility in discussions with Trump.
Plans to enhance imports from the U.S., including liquefied natural gas, are already under consideration, as officials aim to relieve trade pressures. Moreover, direct appeals to Trump’s administration regarding the presence of European companies in the U.S. may be explored.
As they adapt to impending tariffs, European companies are contemplating shifts in production and supply chains to maintain competitiveness.
Leaders of French industries express a desire for Europe to assert its strength and capabilities, with significant firms examining potential production relocations to the U.S. in response to tariff threats.
Some sectors, such as Burgundy wine producers, may not have the option to relocate and, therefore, would absorb the increased costs of any tariffs.
Concerns extend beyond tariffs imposed by the U.S., as trade officials warn that increased tariffs on China could result in more Chinese goods entering Europe, further challenging local businesses already facing high energy costs.
Executives anticipate that a strong U.S. dollar could mitigate some tariff impacts, allowing American consumers to purchase imported goods more affordably.
Business groups are advising members to prepare for potential scenarios, emphasizing the need for proactive planning amidst the uncertainty surrounding trade policies.