The US president has warned that the European Union will be hit with tariffs if it does not correct its trade imbalances with the United States. “They treat us very, very badly. So they are going to have to pay tariffs,” Trump told reporters at the White House. “You can’t get capital if you don’t do it.”
Donald Trump, the US president-elect, has long harbored familiar grievances about the European Union. He has pointed to the large bilateral trade deficit between the United States and the EU – estimated at $131 billion in 2022 and $208 billion in 2023 – as evidence that the Europeans are not playing by the rules and are taking advantage of American naivety. To address the rest of the world’s “unfair” trade practices, he has promised to impose tariffs of at least ten percent on all imports, including those from major European trading partners.
The US president has warned that the European Union will be hit with tariffs if it does not correct its trade imbalances with the United States. “They treat us very, very badly. So they are going to have to pay tariffs,” Trump told reporters at the White House. “You can’t get capital if you don’t do it,” he added.
EU RESPONSE
In response, in an interview with CNBC on the sidelines of the Davos Forum, ECB President Christine Lagarde said she expected the tariffs announced by the new US administration to be “more selective and targeted.” The fact that among the first acts of Trump’s presidency, he did not impose widespread tariffs was a “very intelligent approach, because these do not necessarily produce the results that are expected.” “What we need to do here in Europe is to prepare and assess in advance what is going to happen so that we are able to respond,” Lagarde noted.
Yesterday, Valdis Dombrovskis, the EU’s economy commissioner, announced a “proportionate” response to decisions that could potentially harm the Union’s economic interests. Asked whether the EU has the power to mitigate the impact of new trade barriers, Lagarde replied that EU countries have great potential to exploit by strengthening the internal market, if they enter a path of no return. Lagarde, however, takes her time, stressing that Trump’s objective is not entirely clear. His idea of replacing imports from Europe with domestic American production, he said, would be “questionable”. In any case, he underlined, “the dialogue must continue”.
RISKS TO THE ECONOMY
Dombrovskis said the United States and Europe are strategic allies and it is important for them to work together, both geopolitically and economically. European officials are discussing with their American counterparts a “pragmatic” solution to the tariff dispute, he said, noting that global growth could suffer if economic relations between the two countries were damaged. “It is important to preserve this trade and investment relationship because otherwise there would be global economic fragmentation and there is a real risk of that happening, and the IMF estimates that this would mean a reduction in global GDP of up to 7%,” Dombrovskis said.
TRUMP’S TARIFFS
In 2023, the EU recorded a surplus in trade in goods with the United States, but a deficit in services over the same period. Trump refrained from imposing new tariffs on the first day, offering markets brief relief, but trade risks remain. Experts warn that tariffs on Mexico, Canada and Europe remain possible, with targeted measures expected.
This is a broad review of US trade policy, the results of which are expected in April. However, the possible use of emergency powers is not ruled out if the administration decides to act more aggressively. Trump, in fact, still has the option to invoke the International Emergency Economic Powers Act, which would allow tariffs to take effect immediately if a national emergency were declared.
