Aluminium and Steel Tariffs

In a particularly controversial move, the Trump administration has decided to impose a 25% tariff on aluminium and steel imports from the EU, effective from March 12. This action threatens to deeply affect European companies that rely on these materials for their operations. In response, the EU has vowed to take “firm and proportionate” countermeasures, signaling the start of a potential trade battle.

The Significance of EU-US Trade

The EU and the US are crucial trading partners. In 2023, the EU had a trade surplus in goods with the US, amounting to €157 billion. However, the EU also experienced a €109 billion deficit in services with the US, highlighting the complex nature of the trade relationship. Notably, the EU is both the largest partner for US services exports and the second-largest for goods exports.

While the trade flows are significant—reaching €1.6 trillion—the 3% surplus that the EU holds is not overwhelmingly large. Nevertheless, the importance of this transatlantic relationship cannot be overstated, as the US is the EU’s largest services export partner and one of its leading goods export destinations.

Potential Consequences of Tariffs on Europe

If the US moves forward with tariffs on EU goods, European businesses would likely face higher costs, reducing their competitiveness in the US market. In response, the EU would likely impose tariffs on US products, which would raise prices for European consumers, further straining the economic landscape.

The global economic system is deeply interconnected, meaning that US tariffs on other countries could indirectly harm the EU. Affected countries might redirect their goods to Europe, potentially flooding the European market with products that are now too expensive to sell in the US. This would exacerbate competition for EU companies.

Additionally, the growing uncertainty around tariffs would deter investment, potentially stalling economic growth in the EU. However, this same uncertainty might prompt some countries to seek closer trade relations with the EU, hoping to counterbalance the US’s more aggressive tariff approach.

The EU’s Response

The EU’s response would likely begin with diplomatic negotiations, aiming to resolve the issue through dialogue rather than further escalation. European Commission President Ursula von der Leyen has already warned that unjustified tariffs will not go unanswered, asserting that the EU would act to protect its economic interests. Should negotiations fail, the EU could resort to counter tariffs or take the matter to the World Trade Organization (WTO), claiming the US is breaching international trade rules. The EU also possesses an anti-coercion instrument, which allows it to impose measures on countries acting unfairly, providing a tool for enforcement and deterrence.

The European Parliament’s Stance

MEPs have shown a unified front, emphasizing the importance of continued transatlantic cooperation despite the looming threat of tariffs. The European Parliament’s position is clear: tariffs are detrimental to businesses, consumers, and global stability. Maroš Šefčovič, the European Commissioner for Trade and Economic Security, emphasized that tariffs are essentially taxes on both businesses and citizens, leading to higher costs and inflation. EU lawmakers, such as Bernd Lange, have stated that tariffs would provoke a strong reaction, illustrating that trade measures often lead to retaliation. Sophie Wilmès, Vice-Chair of the Parliament’s US Relations Delegation, further emphasized that Europe is prepared to resist and defend its key sectors if necessary.

The EU faces a delicate balancing act. On the one hand, it must protect its economic interests and businesses from potentially harmful tariffs. On the other hand, it must maintain the integrity of its relationship with the US, which remains one of the EU’s most important partners. This tension between protectionism and cooperation will require careful strategy and negotiation.

In the face of these challenges, the EU’s position is clear: it must respond decisively, leveraging its diplomatic channels, trade agreements, and defence mechanisms. Whether through negotiation or retaliatory measures, the EU must stand firm in its commitment to free and fair trade. But more than that, it must also explore opportunities to forge new alliances, deepen existing relationships, and ensure that its industries remain competitive in an increasingly volatile global market.

Ultimately, the EU must continue to advocate for a rules-based international trading system. The path ahead may be fraught with uncertainty, but through resilient diplomacy and strategic action, the EU can navigate the storm and protect its economic interests in a rapidly changing world.