Now that the dust has settled after Trump’s announcement to raise U.S. trade tariffs by some twenty percentage points, it is time for the European Union and its member states to take stock of its options.
Trump justifies his measures by stating that trade partners levy much higher tariffs than the U.S. and that he only wants ‘reciprocity.’ This is partly true. Although there is discussion about whether the EU or the U.S. is the most protectionist, it is a fact that Europe imposes much higher tariffs on agricultural goods and cars than the U.S.
According to the American vice-president JD Vance, the UK has a prospect of a trade agreement. This could well be the first major ‘Brexit dividend’. The UK is not taking punitive countermeasures and has already cut back certain import tariffs to soften the blow to its economy.
As part of the retaliation for the American tariffs on steel and aluminium, the European Commission planned to impose tariffs of up to 25% on a wide range of export products from the U.S. The first tariffs were to take effect on May 16th, but this has since been postponed to avoid giving the impression that the EU is responding to the new tariffs.
The European Union has offered ‘zero-for-zero’ tariffs on cars and industrial goods, but this has been rejected by Trump, who wants the EU to instead commit to buying 350 billion dollars worth of American energy in order to get relief.
EU-U.S. negotiations are proceeding uneasily meanwhile. The EU has not yet fully brandished its bazooka in retaliation for the American ‘Liberation Day’ tariffs, largely due to differences between member states. Italy and France, in particular, are wary of retaliatory measures from the U.S. With its Anti-Coercion Instrument (ACI), the EU Commission could target the American service sector, such as U.S. big tech and the banking industry. It shows how dangerously this could escalate, especially if Trump were to target the European pharmaceutical sector as well.
Non-tariff barriers
There is, however, a lot of low-hanging fruit for the EU to offer up to appease Trump. The obvious first step would be to simply scrap all kinds of new protectionism that the EU has already decided on but has not yet fully implemented.
The USTR, the American government’s foreign trade agency, wants the EU to abolish the CBAM. That is the so-called ‘Climate Border Adjustment Mechanism’, with which the EU wants to tax certain imports from countries that do not want to follow the expensive European climate policy. This mechanism will mean that European consumers will pay twice: first for the extra costs of the EU’s climate policy and then for the more expensive imports. The CBAM will also create a lot of extra bureaucracy. Abolishing it should be a no-brainer, but it is not even being discussed.
On top of that, there are still many so-called ‘non-tariff barriers’ planned by the EU that can be listed for abolition as an offer to win over Trump. The U.S. trade agency cites the European anti-deforestation directive EUDR as one of the things the EU would be better off abolishing. It states that
The EU’s Deforestation-free Supply Chain Regulation (EUDR) aims to prohibit imports of seven products—including cattle, cocoa, rubber, and wood—unless exporters meet various burdensome compliance requirements, including due diligence and geolocation data. It is estimated the EUDR will potentially impact $8.6 billion worth of annual U.S. agricultural and industrial exports.
The directive in question drew so much protest from both European trade partners and European industry that the EU decided at the end of last year to postpone the cumbersome new regulations for a year. The rules intend to ensure that no products that cause deforestation are imported into the EU.
Malaysia was the first country to complain about this, as it would hit its palm oil industry hard. The country finds it unfair that it is confronted with the new, heavy bureaucracy, despite the fact that it has succeeded in significantly reducing deforestation in the palm oil sector according to NGOs. This is partly thanks to its strict national monitoring standard, the MSPO. A new version of this standard will be even stricter than that of the EU, but the EU nevertheless refuses to label it equivalent.
A debate within Europe
The debate on how the EU should respond to Trump is in full swing. The left wing, of course, wants to do anything but scrap green EU regulations, even if they are not yet in effect. The German social democrat MEP Bernd Lange, who is the chairman of the European Parliament’s trade committee, does not even want to negotiate on this. Fortunately, the European Commissioner for Trade, Maroš Šefčovič, did mention ‘non-tariff barriers’ explicitly as part of the negotiation.
That is a good thing, because the U.S. is serious, and not just about the EU. Trump’s trade advisor Peter Navarro stated, for example, “Let’s take Vietnam. When they come to us and say we’ll go to zero tariffs, that means nothing to us because it’s the nontariff cheating that matters.”
In any case, European countries would do well to keep a cool head now. Donald Trump is giving protectionism a big boost worldwide, but what is less well-known is that the EU has also played a harmful role in this with its own green regulatory mess. Ironically, the EU can now partly make up for past sins, thanks to Trump.
Italian conservative Prime Minister Giorgia Meloni is playing a major role in this. She has Trump’s ear, unlike the European Commission, which is officially responsible for trade policy. Behind the scenes, European Commission President Ursula von der Leyen and Meloni are said to have already discussed a game plan. This in turn caused resentment in France, where the Minister of Industry, Marc Ferracci, warned that it threatened to undermine European unity against American tariffs.
Unity is a fine thing, but what Europe must do above all is abandon a number of harmful green dogmas that have hit the European economy hard in recent years. Trump’s tariffs are a negative across the board, but his demand to scrap European green regulation is more than welcome.
