U.S. President Donald Trump has once again escalated his trade war rhetoric, this time setting his sights on the European Union (EU). After imposing tariffs on China and threatening increased levies on Canada and Mexico, Trump has now declared that punitive tariffs on the 27-member bloc are “definitely happening” and will be implemented “pretty soon.”

Trump made the announcement during an interview with the BBC on Sunday, reinforcing his longstanding claim that Europe’s trade policies are unfair to the United States. On Monday, he doubled down on the threat, citing concerns about trade deficits, particularly in the automotive and agricultural sectors.

The Bigger Picture: Trump’s Trade War Strategy

Trump’s trade policy, which has consistently emphasized an “America First” agenda, has largely targeted America’s closest economic and military allies. Over the past two weeks, his administration has issued a series of executive orders and policy reversals affecting international trade, foreign aid, and agreements.

While Trump has often framed these actions as necessary to protect American jobs and industries, critics argue that his aggressive stance could destabilize global trade and weaken economic partnerships that have been vital for U.S. businesses.

Agathe Demarais, a senior policy fellow at the European Council on Foreign Relations, believes that Trump’s trade strategy is driven by a fixation on trade deficits.

“Trump is obsessed with trade deficits,” she said. “And he may be starting with the places where he feels he will have quick wins.”

The Reality of Trade Deficits

While Trump sees trade deficits as a sign of economic weakness, many economists disagree. A trade deficit occurs when a country imports more goods and services than it exports, but it is not necessarily an indicator of economic failure.

In fact, the last time the U.S. had an overall trade surplus was in 1975, during a period of severe economic recession. Since then, the U.S. economy has grown significantly despite running consistent trade deficits with many major trading partners.

U.S.-EU Trade Relations: A Complex Balance

Trump has frequently described Europe’s trade practices as an “atrocity”, claiming that EU tariffs on American goods are unfair. However, a closer look at tariff structures shows that both sides impose comparable trade barriers on each other.

According to ING Global Markets Research:

• The average tariff on U.S. exports to the EU is 3.95%.
• The average tariff on EU exports to the U.S. is 3.5%.

While these numbers are relatively close, disparities emerge in certain industries, notably automobiles and agriculture.

• The EU imposes a 10% tariff on U.S. car imports, whereas the U.S. tariff on European cars is only 2.5%.
• EU tariffs on food and beverages are, on average, 3.5% higher than those in the U.S., which has long been a source of contention for Trump.

Trump’s Tariff Battle with Canada and Mexico

Trump’s new EU tariff threat follows his recent delayed enforcement of tariffs on Canada and Mexico. Originally, tariffs on Canadian and Mexican imports were set to go into effect on Tuesday, but the White House granted both countries a one-month delay after last-minute negotiations.

The U.S. Chamber of Commerce to the European Union immediately criticized Trump’s planned tariffs on Europe, warning that such actions would invite retaliation and ultimately harm businesses on both sides of the Atlantic.

“Tariffs will only escalate tensions, leading to countermeasures that will cost American companies billions,” the Chamber said in a statement Monday.

Potential Retaliation from the European Union

The European Union has historically responded swiftly to U.S. tariffs with retaliatory measures of its own. If Trump follows through with new tariffs, the EU is expected to respond with countermeasures targeting key American industries, including:

1. Agricultural exports – The EU could impose higher tariffs on American farm products, hitting a sector that forms a major part of Trump’s support base.
2. Automobiles and machinery – European automakers and industrial manufacturers could increase pressure on their governments to retaliate against American exports.
3. Tech and pharmaceuticals – The EU could impose stricter regulations on American tech firms, such as Google, Apple, and Amazon, which are already facing increased scrutiny in Europe over privacy and antitrust concerns.

How Would Tariffs Affect the U.S. Economy?

Economists have warned that escalating tariffs could backfire on the U.S. economy, particularly as inflation and supply chain disruptions remain pressing concerns.

• Higher tariffs on European goods would likely lead to higher prices for U.S. consumers.
• Retaliatory tariffs would hurt American exporters, making it harder for them to compete globally.
• The auto industry, in particular, could face major losses as increased tariffs would raise the cost of imported European vehicles and auto parts, which are essential for American car manufacturers.

In previous tariff battles, American farmers and manufacturers have been among the hardest hit, as foreign markets imposed reciprocal tariffs that reduced demand for U.S. exports.

The Trump-EU Trade War: A Long-Standing Dispute

Trump’s battle with the European Union is not new. During his presidency (2017–2021), he frequently clashed with EU leaders over trade, particularly with Germany and France.

• In 2018, Trump imposed tariffs on European steel and aluminum, triggering EU retaliatory tariffs on American whiskey, motorcycles, and agricultural goods.
• He repeatedly threatened to impose 25% tariffs on European cars, calling German auto exports a “national security threat.”
• The dispute over Boeing and Airbus subsidies led to tit-for-tat tariffs on billions of dollars in goods between the U.S. and EU.

Even after Trump left office, tensions over trade continued, with both sides negotiating temporary agreements to avoid full-scale trade wars. However, Trump’s latest tariff threats suggest a potential return to the same aggressive policies.

Political and Global Implications

Trump’s escalating trade rhetoric could have wider implications beyond just economics. The European Union and the United States are key NATO allies, and a trade war could strain diplomatic relations at a time when both sides are dealing with geopolitical crises, including tensions with Russia and China.

• European leaders, including French President Emmanuel Macron and German Chancellor Olaf Scholz, have previously criticized Trump’s protectionist policies, arguing that they undermine global trade stability.
• A U.S.-EU trade war could also affect China’s economic strategy, as Beijing could benefit from divisions between Western allies.
• If Trump follows through with his tariff threats, it could set off a global chain reaction that impacts financial markets and disrupts investment flows.

Conclusion

Trump’s latest tariff threats against the European Union mark yet another escalation in his long-running trade war with key U.S. allies. While his administration argues that tariffs are necessary to reduce trade deficits and protect American industries, critics warn that such policies could invite retaliation, harm businesses, and strain diplomatic ties.

As the world watches, the question remains: Will Trump follow through on his EU tariffs, or will negotiations prevent another full-scale trade war? Either way, the global economy is bracing for impact.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

6th January, 2025