Europe on the Brink of a Trade War – How Does Brussels Plan to Respond?

Differences in economic and political perspectives among European countries often make it difficult to reach unified decisions. However, when it comes to trade pressure from Washington, the European Union (EU) strives to maintain a united front. U.S. President Donald Trump is once again threatening the EU with heavy tariffs, which could have serious economic consequences.

At the end of January, Donald Trump sharply stated that the EU is not buying enough American goods, particularly automobiles and agricultural products, which he described as a weakness in American trade policy. This statement quickly impacted financial markets— the euro’s exchange rate against the dollar dropped by 1%, while European stock indices suffered significant declines.

The EU’s traditional response to such situations has been to impose reciprocal tariffs. For example, in 2018, when Trump imposed restrictions on metal imports to the U.S., the EU responded by targeting specific American products with tariffs—particularly those that were important to Trump’s voter base. Today, the EU has new mechanisms for such responses, including an “anti-coercion instrument,” which allows for the rapid implementation of retaliatory tariffs if third countries exert economic pressure on any EU member state.

Once again, Brussels has already prepared a set of countermeasures, though they have not yet been made public. It is likely that the EU will adopt the same approach— a gradual implementation of tariffs to push Trump’s administration toward negotiations.

However, there are significant challenges ahead. First, if Trump decides to impose tariffs of 10-20%, the EU will have to either go through a lengthy legal process via the World Trade Organization (WTO) or adopt a new law specifically targeting the U.S. Additionally, implementing tariffs could further escalate a trade war, potentially impacting the entire global economy. WTO Director-General Ngozi Okonjo-Iweala has already urged countries to seek alternative solutions and avoid a full-blown trade war.

The EU will likely attempt to appease Trump’s administration with certain concessions. One possible strategy could be increased purchases of American natural gas and military equipment. European Commission President Ursula von der Leyen has already discussed the EU’s readiness to significantly increase imports of American liquefied natural gas (LNG), particularly as part of efforts to reduce dependence on Russian energy supplies. At the same time, an increase in defense spending, one of Trump’s key demands, could be fulfilled through the purchase of American weaponry.

Another potential compromise could be related to China. The U.S. is already tightening trade policies against China, and if the EU imposes additional restrictions on Chinese companies, this could serve as a signal to Trump that Brussels is open to negotiations.

One of the most important aspects that has always concerned Trump is Europe’s trade surplus with the U.S. This issue primarily involves Germany, which has long enjoyed a trade surplus in its relationship with the U.S. Brussels may offer Trump a deal, whereby EU member states would work to rebalance trade, for example, by stimulating domestic consumption to increase imports from the U.S.

Trump has already announced that the EU is his next trade war target. This could lead to a prolonged negotiation process, during which both sides will take certain dramatic steps. Trump wants to ensure the American economy outperforms Europe, while EU leaders will fight to protect their own economic interests.

Brussels fully understands that external threats often unite the EU. It is likely that this trade conflict will force Europe to accelerate efforts to strengthen its economy, achieve energy independence, and enhance defense capabilities. However, the key question remains— will the EU be able to avoid a major economic confrontation through negotiations, or will the global market face another significant disruption?

Based on materials from The Economist.