“The European Union is…” US President Donald Trump shakes his head, disgust etched into his features. Behind him on the runway, the engines of Air Force One are roaring. “It’s an atrocity, what they’ve done.”
What Europe had done, Trump told reporters Sunday night, was commit the cardinal sin of not buying more American products. He evoked a yawning trade deficit between the US and the EU, first describing it as $300 billion and then as $350 billion in the space of two sentences. According to the US government’s own official estimate, the US-EU goods and services deficit was just over $131 billion as of 2022.
“They don’t take our cars, they don’t take our farm products, they take almost nothing – and we take everything from them,” he said. Now, he warned, the 27-nation bloc would “definitely” face US tariffs.
If the past few days is anything to go by, it’s no idle threat. Trump announced 25 percent tariffs on all imports from the main US trading partners Mexico and Canada – except for the latter’s oil and gas, which would instead face a 10 percent import tax. A 10 percent tariff on all imports from China prompted retaliatory tariffs from Beijing.
And although Mexico and Canada managed to secure a one-month reprieve before the tariffs come into effect, the threat of a full-fledged trade war is still hanging over North America. Trump has promised that Europe is next.
Who needs soft power? Trump threatens neighbours with tariffs
Aurélien Saussay, assistant professorial research fellow in the Grantham Research Institute on Climate Change and the Environment, said that the fact that the US was importing more European goods than it was sending back across the Atlantic was no secret.
“The fact that a deficit exists and that it’s quite substantial is true, it’s verifiable and measurable,” he said. “It basically just reflects the differences in cost of production quality of the products offered, and that the American consumer prefers the European option for a number of products that are offered on both sides of the Atlantic. That’s essentially what a trade deficit means – that your domestic options are less desirable at a given price point than the alternative overseas.”
The EU has consistently exported more goods to the US than it has imported. In 2023, the EU exported €502 billion worth of goods to the United States while importing €344 billion, creating a €158 billion surplus for the EU, data from Eurostat showed.
By contrast, Europe imports much more in terms of services than it exports to the US, registering a €104 billion deficit in that sector.
Saussay said that Trump’s description of this imbalance as fundamentally unfair was not backed by evidence.
“I don’t believe that President Trump has clearly explained what in Europeans’ practices or policies is exactly unfair,” he said. “There have been no accusations of illegal subsidies, or of the tax environment being more favourable in Europe that it is in the US – if anything it’s probably the opposite. So characterising it as unfair is very challengeable.”
Economic isolationism?
Whether or not it actually matters is another question. Uri Dadush, non-resident fellow at European think-tank Bruegel and a research professor at the University of Maryland’s School of Public Policy, said that Trump had been preaching the need to protect US industries from foreign competitors through tariffs long before he launched his first presidential campaign.
“The way it looks at this point is protectionism, pure and simple – and therefore he will apply that to the European Union as he does everywhere else,” he said. “And it looks to me like he’s initially aiming for 25 percent uniform tariffs across all US trading partners, which he will do in stages and eventually I would not rule out that what he is really aiming for is … to basically isolate the US economy and encourage international companies to invest in the United States instead – producing in the United States, for the United States.”
Tariffs are a kind of tax imposed on goods coming from overseas that businesses pay to the receiving country’s government. Although they bring in a modest revenue, tariffs have largely been used by countries to shelter domestic industries from foreign competition – though proponents of free trade maintain that the costs are invariably passed on to consumers.
Saussay said that promises to bring back manufacturing jobs through aggressive trade tariffs had been a staple of Trump’s two presidential campaigns – and a powerful part of the Republican candidate’s appeal to swing-state voters in the nation’s de-industrialising Rust Belt.
“Those areas voted predominantly for Trump in all three of the past presidential elections,” he said. “So there is a direct link between Trump’s political fortunes and his protectionist outlook. He was one of the first political voices in the US to recognise that the ever-expanding free trade agreements were not an unmitigated good for every American.”
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This would not be the first time that the EU has found itself dragged into a trade war with Washington. In Trump’s first term, the EU was one of the US trade partners to be hammered with a 10 percent tariff on aluminium exports to the US and a 25 percent tariff on steel. The EU responded by targeting an almost comically American array of US exports including bourbon, motorcycles and blue jeans.
Robert Basedow, associate professor for international political economy at the European Institute of the London School of Economics and Political Science, said he would not be surprised if the EU found itself targeted by the same kind of flat tariffs levelled against China, Mexico and Canada – with potentially bitter results.
“It would lower EU exports, resulting in higher strains on public budgets and unemployment rates, and a further slowdown in EU GDP growth,” he said.
Deutsche Bank analysts on Monday said that 10 percent flat tariffs against the EU could strip 0.5-0.9 percent off the bloc’s gross domestic product. For comparison, the EU’s GDP growth is projected to be just 1.5 percent in 2025, rising to 1.8 the following year.
Not all countries will suffer equally, though. Dadush said that Trump’s tariffs would hit some sectors of Europe’s economy much harder than others.
“I think pretty much all European countries are affected, but the one that really stands out would be Germany, because they have by far the largest surplus and the largest exports towards the United States – and those exports are concentrated in cars, machinery, pharmaceuticals and chemicals,” he said.
In 2023, the most-exported manufactured goods shipped from the EU to the US were machinery and vehicles at 41 percent, followed by chemicals at 27 percent, Eurostat data shows. Germany was by far the largest exporter to the US in 2023, distantly followed by Italy and Ireland.
Already, German automakers such as Volkswagen that produce large numbers of vehicles destined for south of the US border stand to lose a great deal when Trump’s tariffs on Mexican imports comes into effect. If those same tariffs come to Europe, Dadush warned, whole industries built around US exports would be exposed.
Saussay said that Germany’s export-led economic growth strategy had left it vulnerable to the kind of punishing protectionist measures Trump was proposing.
“The case of Germany is really specific, because Germany has had its entire development model challenged very seriously since 2022,” he said. “Their whole economy was oriented towards exports, particularly towards China – and China is relying less and less on imports for the machine tools that Germany was exporting. It’s increasingly producing them internally.”
Will EU show united front in face of Trump tariffs?
For months now, European officials have told journalists that they have been drawing up lists of US imports to target should a transatlantic trade war break out. Basedow said that the bloc had a broad arsenal of measures to draw on – but only if the member states are able to present a united front against the US.
“The EU has enacted a number of regulations that allow it to move swiftly to counter coercive tariffs,” he said. “I would also expect that some member states and the EU may push for other costly measures against US firms – investigations into anti-competitive practices, labour standards, revisions of national tax laws to capture a greater share of the profits of US multinationals, environmental measures either to force US companies to adopt more stringent production methods or limit their market access, et cetera. Tariffs are only one of the many tools that the EU and the member states can use to respond.”
It may not come to that. European Commission President Ursula von der Leyen has repeatedly stressed her preference for negotiation over confrontation, hoping that US calls for the EU to buy more US-made arms and liquefied natural gas (LNG) are signs that the famously transactional Trump is just trying to put pressure on the bloc’s leadership.
“The initial signs are not exactly encouraging,” Saussay said. “President von der Leyen has declared that she was fully prepared to increase the volumes of imported LNG to Europe as a way to assuage Trump’s worries, or essentially a deal that would sound a bit like, ‘We’re going to increase our imports of fossil fuels from you, and in exchange you maintain the security and safety guarantees that the US has over Europe’.”
For his part, Dadush said, it would ultimately be ordinary consumers around the world who would be paying the price daily for the trade war unleashed by Trump’s White House.
“Some countries are much more exposed to trade than the United States – many countries are,” he said. “The United States is shooting itself in the foot, but other countries that are even more dependent on trade like Mexico, Canada, Germany, the Netherlands – those countries will be even worse affected.”
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