This article is republished from The Conversation under a Creative Commons license.
The US-EU trade war is gathering pace. Following the imposition of 25% US import tariffs on steel and aluminum from March 12th, President Trump has announced further plans to introduce “reciprocal” tariffs on all countries on or after April 1st. This means that the US would match other countries’ import duties in a tit-for-tat manner, or as Trump put it, “they charge us, we charge them.”
Such measures would have a devastating impact on the EU’s auto industry, as Trump also aims for the new tariffs to mirror the EU’s Value Added Tax (VAT) and subsidies, potentially leading to a de facto 30% tariff on European cars entering the US.
Trump has repeatedly voiced his grievances against the EU, stating “they don’t take our cars, they don’t take our farm products, they take almost nothing, and we take everything from them. Millions of cars, tremendous amounts of food and farm products… the European Union, it’s an atrocity what they’ve done.”
But how justified are Trump’s grievances? Is the US really being treated unfairly? And why is there a trade deficit between the two powers in the first place?
Trump Overlooks Service Exports
Over the past 15 years, the EU has consistently exported more goods to the US than it has imported. According to Eurostat data, the US goods trade deficit with the EU stood at $158 billion in 2023. Between 2013 and 2023, the EU’s surplus in trade in goods with the US varied from €81 billion in 2013 to €166 billion in 2021.
However, in services, the US had a surplus of exports over imports with the EU amounting to €104 billion in 2023. This significantly reduces the overall trade deficit to “only” €54 billion, a relatively small amount compared to the US economy’s total value of $27 trillion.
Despite this, Trump focuses exclusively on the deficit in traded goods and threatens to match tariffs raised by other countries to achieve a level playing field. However, overall tariff rates between the two blocs are fairly similar, with an average of 3.95% for US products and 3.5% for EU products. Nevertheless, there are significant variations in certain sectors.
Trump’s concerns about tariffs on cars, agriculture and food are not completely unfounded. For example, the EU tariff rate on imported cars is 10%, compared to 2.5% in the US, and EU tariffs are around 3.5 percentage points higher on food and beverages. Additionally, tariffs on chemicals are on average 1 percentage point higher in the EU than in the US.
In these areas, the EU could indeed encounter significant tariff threats and difficult negotiation sessions ahead.
EU Regulations Could Rein In US Tech
The EU has promised a “firm and proportionate” response, stating that it is prepared to retaliate against the 25% tariffs on steel and aluminum and any further tariffs. EU member states have already authorized tariffs of up to 50% on €4.8 billion worth of US imports, and could swiftly finalize a vote to enforce them.
The targeted products include bourbon whisky, Harley-Davidson motorcycles, motorboats and certain steel and aluminum items. These tariffs are set to automatically take effect at the end of March, unless a majority of EU countries decide to implement them earlier.
Another potential leverage point is the EU’s regulatory power, particularly over Big Tech. This is a significant concern for Washington, with companies like X and Meta under EU scrutiny over content regulation and data sharing with authorities.
As the world’s largest exporter of services, the US could face considerable EU retaliation. Brussels might impose additional restrictions on American consulting and financial firms, increase digital taxes on US platforms or revoke intellectual property rights.
Despite having the upper hand in this arena, the EU has insisted that it prefers negotiation over confrontation. In a recent meeting with US Vice President JD Vance, EU President Ursula von der Leyen reaffirmed the EU’s “commitment to a fair trade relationship [with the US].” She suggested that the EU could buy more US products, such as liquefied natural gas, to narrow the trade deficit.
Bernd Lange, chair of the European Parliament’s trade committee, recently told the press that the bloc was open to reducing its 10% import tax on cars to align more closely with the 2.5% rate imposed by the US. Another potential offering could be to increase defense spending and buy US arms and weaponry.
However, beyond tariff differences, there are other major factors that explain the longstanding trade deficit between the US and the EU, and these are not as easy to fix.
The EU Doesn’t Trust US Goods—Especially Food
Consumer behavior and preferences—on both sides of the Atlantic—play a huge part in the US-EU trade relationship. A trade deficit often reflects differences in production costs and product quality. This suggests that American consumers generally prefer European products over domestic alternatives, while European consumers favor their own products over American ones. The result is a trade deficit in favor of the EU.
One major contributing factor, particularly in food exports to the EU, is the bloc’s stringent regulations on agriculture, which the US has repeatedly challenged. These include rules on hygiene and pesticides (known as sanitary and phytosanitary standards, SPS) and geographical indications (GIs). Longstanding and unresolved trade disputes involving agricultural products have limited US exports to the EU, particularly in beef, poultry and dairy products.
The EU’s SPS rules can also hinder trade in food products that utilize biotechnology and other production methods commonly used in the US. A notable example is the EU-US beef hormone dispute, which lasted from 1996 to 2009.
For 13 years, the EU imposed a total ban on US beef imports citing health concerns related to hormones, under the EU’s precautionary principle (“better safe than sorry”). The US repeatedly challenged this ban, and even took it to the World Trade Organization. In 2009, the EU agreed to import a quota of hormone-free US beef.
The dispute resurfaced when the US alleged the EU was not honoring this quota, eventually leading to a deal in 2019 where the EU agreed to import 35,000 tons of hormone-free US beef.
The EU’s geographical indication (GI) regulations also restrict trade in certain foods, wines and spirits labelled with EU-protected names that US producers consider generic. For instance, US cheeses labeled as Parmesan or Asiago cannot be sold in the EU, as only cheeses produced in regions with GI registrations can use those names.
While the US contends that these regulations are a form of protectionism, the EU maintains that its health and sanitary standards are stricter than those in the US and apply uniformly to all non-EU products, not just those from the US.
Trade War Seems Inevitable
Regardless of whether the US’s grievances are justified or unfounded, the reality is that the EU and the US are on a trade warpath with no end in sight. The EU asserts that it is better prepared for Trump 2.0, boasting an expanded retaliatory toolkit that includes the Anti-Coercion Instrument and an updated EU Enforcement Regulation for trade disputes. Whether these measures will be sufficient to deter the US remains uncertain.
What is clear, however, is that we are witnessing a remarkable reversal of history. The US, which has championed free trade for the past 80 years, is now actively challenging the rules and principles that underpin the multilateral trading system, with potentially catastrophic consequences for the EU, the US and the rest of the world.
Waya Quiviger, Professor of Practice of Gobal Governance and Development, IE University
This article is republished from The Conversation under a Creative Commons license. Read the original article.
