Trump’s Tariffs: A Trade War with Europe?

The U.S. and the EU share one of the world’s largest trade relationships, but Trump’s tariff threats could shake this partnership, with major economic consequences. The EU must decide how to respond—retaliating, seeking new trade deals, and negotiating with Washington. While Trump’s tariffs are often a pressure tactic, the war in Ukraine is reshaping U.S.-EU relations, making negotiations more complex and uncertain.

Ursula von der Leyen and Vice president J.D. Vance meeting in Paris in February 2025

"The EU was formed to screw the United States," U.S. President Donald Trump declared during a cabinet meeting on February 26th. Trump has repeatedly criticized the U.S.-EU trade relationship, citing a goods trade deficit he estimates at $350 billion—though official figures from 2024 place it closer to $235 billion. He has expressed frustration over the EU's 10% tariff on American cars compared to the U.S.’s 2.5% tariff on European cars, as well as Europe’s digital regulations affecting American corporations. Trump stated he would "absolutely" impose tariffs on Europe, mentioning a 25% figure targeting European exports, including "cars and all sorts of things," in addition to a universal 25% tariff on steel and aluminum. European Commission President Ursula von der Leyen warned that such "unjustified" tariffs "will not go unanswered."

In 2024, the European Union was the largest trading partner of the United States, with trade worth $900 billion—surpassing Mexico ($865B), Canada ($765B), and China ($580B), according to the Office of the U.S. Trade Representative. The EU, in turn, exported 20% of its goods to the U.S. in 2023. A trade war between these major economies could have significant consequences. The Kiel Institute estimates that real GDP growth would shrink by 0.4% in the EU and 0.17% in the U.S. within a year, with steeper declines if the EU retaliates with its own tariffs. Inflation would also rise due to higher input costs, such as energy the EU imports from the U.S., and tariffs making goods more expensive. Some industries would be particularly hard hit. Germany and Italy’s automotive sectors, which rely heavily on U.S. exports, could suffer, while Slovakia, where exports make up 92% of GDP, could see major job losses in export-driven industries.

The EU has several options for responding. When the Trump administration imposed 25% tariffs on steel and 10% on aluminum in 2018, the EU filed a suit at the WTO and imposed over $3 billion in retaliatory tariffs, later suspended during the Biden administration. In 2023, the EU created the Anti-Coercion Instrument (ACI) to counter economic pressure from third countries. It was originally designed for China, but Trump’s justification of tariffs on the value-added tax (VAT)—a non-discriminatory tax—and his attempts to pressure the EU on digital regulations could convince Europe to trigger this tool to safeguard its economic sovereignty. This would allow the EU to impose tariffs or restrict procurement access (Clearly Trade Watch).

Like in 2018, the EU could strategically target goods that impact Republican-leaning states. Last time, tariffs were placed on bourbon whiskey from Kentucky, orange juice from Florida, and motorcycles from Wisconsin (Reuters). 

A broader strategy would be to deepen trade ties with other partners. The EU is accelerating free trade negotiations with India, seeking greater market access for automobiles and alcoholic beverages, while India pushes for favorable tariff terms (Reuters). The EU is also strengthening ties with Mexico and Canada, both affected by U.S. tariffs. In late 2024, the EU and Mexico finalized an updated trade agreement to reduce tariffs on European agri-food imports and ease investment restrictions. Similarly, since the signing of CETA in 2017, EU-Canada trade has surged by 65%, focusing on critical minerals and technology.

However, Trump’s tariff threats are often a negotiation tool. Tariffs on Canada and Mexico, set for February 4th, 2025, were delayed to March 4th in exchange for increased border security efforts. After briefly taking effect, some, including those on cars, were suspended again. This suggests the EU has room to negotiate with the U.S. to mitigate or lower tariff rates.

During his first term, Trump criticized NATO allies for failing to meet the 2% defense spending target and warned against Europe’s dependence on Russian energy. These concerns remain at the heart of EU-U.S. relations, especially in the context of the war in Ukraine. His stance reflects a broader strategy of pressuring European countries to increase their military budgets, as he sees the U.S. as carrying an unfair financial burden in ensuring collective defense. Initially, the U.S. was Ukraine’s strongest backer, providing approximately $119 billion in aid (The New York Times). But under America First policies, Washington prioritized swift negotiations with Russia—excluding Europe and Ukraine—to secure a ceasefire and access to Ukraine’s rare minerals. The lack of long-term security guarantees from the U.S. led Ukraine to reject the deal, triggering a major diplomatic rift: U.S. aid to Ukraine was cut off entirely. For Europe, which sees Ukraine as a crucial buffer against Russia, this shift pushes the EU toward greater military self-reliance. 

The EU has unveiled an €800 billion rearmament plan, "ReArm Europe," to boost defense capabilities significantly. The plan consists of two key elements (MarketWatch): one involves using the Stability and Growth Pact’s escape clause to permit higher defense spending without violating EU fiscal rules, which could generate up to €650 billion over four years. The other component is a €150 billion loan program from the EU to support military investments.

Several member states have already committed to major increases—France plans to raise its defense budget from 2% to 3%-3.5% of GDP, Denmark aims for over 3%, and Poland is targeting nearly 5% by 2025. While the plan prioritizes Europe’s own defense industry, some spending will inevitably go toward American weapons, which could appease Trump.

Imports of Russian oil and gas have decreased substantially, with gas imports dropping from 45% in 2021 to 18% in 2024 (Centre for Research on Energy and Clean Air). In transitioning away from Russian energy, the U.S. has become the EU’s top supplier, accounting for 17.1% of petroleum oil imports and 47.4% of liquefied natural gas (LNG) imports as of March 2024, according to Eurostat. French President Emmanuel Macron and von der Leyen have both discussed purchasing additional U.S. crude oil and LNG.

The key question remains whether these efforts will be enough to secure the U.S.’s role in the alliance with Europe or to prevent the imposition of tariffs. Even as negotiations take place, the threat of tariffs cannot be dismissed—especially given that 20% tariffs on China have already been implemented and even America's closest ally, Canada, has been affected, such as with a 10% tariff on energy. The EU must therefore brace itself for potential economic fallout, strategizing its response while balancing negotiations and security interests.

References

The Economist. “Europe Races to Confront America’s Trade War.” The Economist, 3 Feb. 2025, www.economist.com/europe/2025/02/03/europe-races-to-confront-americas-trade-war.

Cleary Trade Watch. “The EU’s Possible Response to Trump II Tariffs.” Cleary Trade Watch, March 2025, www.clearytradewatch.com/2025/03/the-eus-possible-response-to-trump-ii-tariffs/.

Berg, Aslak. “Trump’s Tariffs – How Should the EU React?” Centre for European Reform, 26 Feb. 2025, www.cer.eu/insights/trumps-tariffs-how-should-eu-react.

European Parliament. “EU-US Trade: How Tariffs Could Impact Europe.” European Parliament, 10 Feb. 2025, www.europarl.europa.eu/topics/en/article/20250210STO26801/eu-us-trade-how-tariffs-could-impact-europe.

Wikipedia. “First Trump Tariffs.” Wikipedia, en.wikipedia.org/wiki/First_Trump_tariffs#:~:text=In%20January%202018%2C%20Trump%20imposed,estimated%204.1%25%20of%20U.S.%20imports.

Wikipedia. “Second Trump Tariffs.” Wikipedia, en.wikipedia.org/wiki/Second_Trump_tariffs.

Wikipedia. “2025 United States Tariffs Against the European Union.” Wikipedia, en.wikipedia.org/wiki/2025_United_States_tariffs_against_the_European_Union.

Nomura Connects. “How Trump’s Tariffs May Impact European Growth.” Nomura Connects, www.nomuraconnects.com/focused-thinking-posts/how-trumps-tariffs-may-impact-european-growth/.

Reuters. “What Are the EU’s Options in Response to Trump Tariffs?” Reuters, 10 Feb. 2025, www.reuters.com/world/europe/what-are-eus-options-response-trump-tariffs-2025-02-10/

Kiel Institute for the World Economy. “Trump’s Tariff Threats on EU Could Trigger Economic Turmoil.” Kiel Institute for the World Economy, www.ifw-kiel.de/publications/news/trumps-tariff-threats-on-eu-could-trigger-economic-turmoil/.

India Tracker. “India-EU Free Trade Agreement: A Landmark Deal in the Making.” India Tracker, www.indiatracker.in/story/india-eu-free-trade-agreement-a-landmark-deal-in-the-making.

Reuters. “Canada Seeks Stronger EU Trade Ties as Both Regions Threatened by Trump Tariffs.” Reuters, 8 Feb. 2025, www.reuters.com/world/americas/canada-seeks-stronger-eu-trade-ties-both-regions-threatened-by-trump-tariffs-2025-02-08/.

MarketWatch. "EU President Aims for €800 Billion of Defense Funding – How It Would Work." MarketWatch, 4 Mar. 2025, https://www.marketwatch.com/story/eu-president-aims-for-800-billion-of-defense-funding-how-it-would-work-3251208e?utm_source=chatgpt.com.