US tariffs on European goods threaten to shake up the world’s largest trade relationship
FRANKFURT, GERMANY: The European Union expects to find out on Monday whether President Donald Trump will impose punitive tariffs on America’s largest trade partner, in a move economists warn would have repercussions for companies and consumers on both sides of the Atlantic.
Trump imposed a 20% import duty on all EU-made products in early April as part of a set of tariffs targeting countries with which the United States has a trade imbalance. Hours after the nation-specific duties took effect, he put them on hold until July 9 at a standard rate of 10% to calm financial markets and allow time for negotiations.
Expressing displeasure with the EU’s stance in trade talks, however, Trump said he would increase the tariff rate on European exports to 50%, which could make everything — from French cheese and Italian leather goods to German electronics and Spanish pharmaceuticals — much more expensive in the US.
The European Commission, which handles trade for the bloc’s 27 member states, said its leaders hope to strike a deal with the Trump administration. Without one, the EU said it is prepared to retaliate with duties on hundreds of US goods, ranging from beef and car parts to beer and Boeing aircraft.
US Treasury Secretary Scott Bessent told CNN’s “State of the Union” programme on Sunday that “the EU was very slow in coming to the table” but that talks were now making “very good progress.”
Here are the key facts on US–EU trade.
US–EU trade is enormous
The European Commission describes trade between the US and the EU as “the most important commercial relationship in the world.” The value of EU-US trade in goods and services amounted to 1.7 trillion euros ($2 trillion) in 2024, or an average of 4.6 billion euros a day, according to Eurostat.
The biggest US exports to Europe were crude oil, pharmaceuticals, aircraft, automobiles and medical equipment, while Europe’s top exports to the US included pharmaceuticals, cars, aircraft, chemicals, medical instruments and wine and spirits.
EU sells more to US than vice versa
Trump has complained about the EU’s 198 billion-euro trade surplus in goods, which shows Americans buy more from European firms than the other way around. However, US companies narrow the gap by outselling the EU in services such as cloud computing, travel bookings and legal and financial services. The US services surplus reduced the overall trade deficit with the EU to 50 billion euros ($59 billion), less than 3% of total US–EU trade.
Key points of contention
Before Trump returned to office, the US and the EU maintained a cooperative relationship with low tariffs. The US averaged a 1.47% rate on European goods, while the EU’s rate on American products was 1.35%. Since February, however, the White House has adopted a tougher stance: fluctuating tariffs on EU goods, a 50% levy on steel and aluminium and a 25% duty on imported cars and parts.
US officials want agricultural barriers lifted, including EU bans on chlorine-washed chicken and hormone-treated beef, and have criticised Europe’s value-added taxes of 17–27%, though economists note VAT applies equally to domestic and imported products and is set by national parliaments, not trade negotiators.
“On the thorny issues of regulations, consumer standards and taxes, the EU and its member states cannot give much ground,” said Holger Schmieding, chief economist at Germany’s Berenberg Bank. “They cannot change their internal market to suit US demands, often rooted in a faulty understanding of how the EU works.”
Consequence for many companies
Economists warn higher duties will push up US prices on imports. Importers must decide how much to absorb and how much to pass on. Mercedes-Benz dealers in the US say they are holding model-year 2025 prices “until further notice.” The German manufacturer benefits from a partial tariff shield, as 35% of the Mercedes-Benz vehicles sold in the US are made in Tuscaloosa, Alabama, but it expects “significant increases” in the years ahead.
Simon Hunt, chief executive of Italian wine and spirits group Campari, told analysts that if rivals raise prices he may hold prices on Skyy vodka or Aperol to gain market share; otherwise Campari could increase its own prices.
Trump argues that tariffs will revive US manufacturing, though most companies say any boost would take years. Some, including LVMH, whose brands include Tiffany & Co., Louis Vuitton and Christian Dior, have signalled they may shift production to the US if tariffs remain. “If we end up with high duties, we will be forced to increase our US-based production to avoid them,” billionaire CEO Bernard Arnault said. “And if Europe fails to negotiate intelligently, that will be the consequence for many companies. It will be Brussels’s fault, if it comes to that.”
Road could be rocky
Without a deal, the EU would lose 0.3% of its GDP and US GDP would fall 0.7% if duties of 10–25% are applied, according to Bruegel, a Brussels think tank. A framework agreement before Wednesday’s deadline may leave a 10% base duty plus existing auto, steel and aluminium levies until a formal deal is finalised.
Exemptions for some goods and modest regulatory concessions by the EU could smooth the way. “While Trump might sell such an outcome as a ‘win’ for him, the ultimate victims of his protectionism would be mostly US consumers,” Schmieding said.
By RSS/AP
