President Trump has indicated that punitive tariffs on the 27 members of the European Union (EU) are imminent, stating that "tariffs will definitely happen" and are expected to come "pretty soon." This announcement follows his complaints about trade deficits with various countries, including Mexico, Canada, and the EU, as new tariffs on imports from Canada and China are set to take effect.
Mr. Trump has characterized the EU's trade practices as an "atrocity," claiming that the bloc has "abused" the United States for years. His administration has recently issued a series of executive orders and policy reversals regarding international trade, with a focus on imposing penalties on key allies.
Trade deficits have been a central concern for Mr. Trump, according to Agathe Demarais of the European Council on Foreign Relations. She noted that he may be targeting regions where he believes he can achieve quick victories. However, trade surpluses do not necessarily reflect a country's economic health, as evidenced by the last overall U.S. trade surplus occurring in 1975.
In 2023, the U.S. had a trade surplus with Britain, which may help it avoid tariffs. In contrast, the tariffs imposed by both the U.S. and the EU are relatively similar, with U.S. exports to the EU facing an average tariff of 3.95 percent and EU exports to the U.S. facing a 3.5 percent tariff. Disparities exist in specific sectors, such as automobiles, where the EU imposes a 10 percent tariff compared to the U.S. rate of 2.5 percent.
The U.S. is the largest buyer of EU exports, accounting for nearly 20 percent of the total in 2023. The EU's surplus on goods was approximately $160 billion, while there was a $107 billion deficit in services. European leaders, including Denmark's Prime Minister Mette Frederiksen, have expressed opposition to a tariff conflict with the U.S., advocating for a collective response if tariffs are imposed.
As the threat of a trade war looms, European business leaders are preparing for potential repercussions, warning that tariffs could hinder investment and negatively impact companies already facing challenges due to declining demand. The U.S. Chamber of Commerce has criticized the proposed tariffs, arguing they would lead to retaliation and harm businesses on both sides of the Atlantic.
German industry leaders have shown concern regarding the impact of U.S. tariffs, particularly on the automotive sector, which relies heavily on supply chains that include operations in Mexico and Canada. Economists estimate that 1.2 million jobs in Germany depend on exports to the U.S., with a potential loss of up to 300,000 jobs if tariffs are enacted.
Additionally, Europe's luxury industry is preparing for possible declines, recalling previous instances where tariffs were imposed on French wines and Italian cheeses. Bernard Arnault, head of LVMH, has sought to maintain a positive relationship with Mr. Trump, recognizing the U.S. as an attractive market due to favorable corporate tax rates.
While concerns about trade deficits exist, economists argue that the current U.S. economy is not facing significant issues related to trade balances. They caution that increased tariffs could raise prices for American consumers, ultimately lowering their standard of living.