Following the decision by President Donald Trump to impose 25% import taxes on all steel and aluminium entering the United States, the threat of tariffs is now a very real possibility in the European Union, and while counter actions are possible, they would be ‘complicated’, ING analysts have said.
According to ING’s Carsten Brzeski, Global Head of Macro, and Inga Fechner, Senior Economist, Germany, Global Trade, Trump’s decision on steel and aluminium already impacts European manufacturers, who export around €3 billion worth of steel and €2 billion of aluminium to the U.S., affecting around 1% of total goods exports across the Atlantic.
“But this is not where it will stop,” they write in a briefing note. “The looming threat of blanket tariffs on the EU and the announced trade reciprocity makes the question of how the EU could and will react more pressing.”
Swift action
While the EU has a number of potential retaliatory measures it could call upon, its ability to act quickly remains limited, the analysts suggest.
“At the end of 2023, the EU put a trade bazooka in place, the so-called EU Anti-Coercion Instrument (ACI),” they note. “It could be invoked if Trump attempts to impose duties on a specific member state, provided it gets the green light from a ‘qualified majority’ of 15 out of the 27 member states, representing at least 65% of the bloc’s population.
“However, any reaction under the ACI would take some eight weeks, and it can’t be triggered if Trump’s tariffs are not punitive or their adoption is made conditional on policy changes performed by the EU and its member states. The EU’s first problem, then, is speed.”
Selective tariffs
Options could include retaliatory tariffs aimed at goods produced in key U.S. swing states, such as soybeans, bourbon, motorcycles, and orange juice – an approach it took in 2018, when the previous Trump administration introduced tariffs on steel. Another option would to impose export tariffs on “goods that are of strategic importance to the US”, the analysts suggest, including in the chemical and pharmaceutical sectors.
“The ultimate retaliation would be a digital services tax,” they note. “While the EU enjoyed a substantial trade surplus in goods with the United States, amounting to €156 billion in 2023, this was mostly offset by a significant trade deficit in services, which reached €104 billion in the same year. Among those service exports are IT services, led by dominant American tech companies, charges for intellectual property or financial services.”
The art of the deal
While some believe Trump is merely ‘after a good deal’, the ING analysts aren’t so sure, suggesting that the administration may also be seeking to undermine its competitors.
“Although the EU is better prepared to tackle Trump 2.0, it still faces a complex challenge in countering potential US tariffs,” they write.
“While the EU has several options at its disposal, including retaliatory tariffs on key US exports and the implementation of a digital services tax, the effectiveness of these measures will depend on the EU’s ability to act swiftly and cohesively.” Read more here.
