Donald Trump is turning up the heat on Europe. After announcing a shock 50% tariff on EU products from 1 June, then extending the deadline to 9 July, the U.S. President is making it clear: he wants a deal, and he wants it now.
The message is unmistakable: if negotiations don’t move, the pain will.
Europe's wait-and-see attitude
Since starting the trade war, the European Union has adopted an appeasement strategy.
Unlike China, it has not entered into a game of escalation and has not struck back blow for blow.
While steel, aluminium, and European cars are subject to a 25% tax when entering the United States, and other goods are subject to a 10% levy, the European Union has not applied reciprocal sanctions.
The European Commission has prepared lists of U.S. products likely to be subject to retaliation but does not expect to act before July. European leaders want to give negotiators time to find a compromise.
When Trump denounces, in no particular order, the health standards that prevent American meat exports and the protection of user data that hinders digital giants or VAT, the Europeans avoid verbal one-upmanship.
They simply point out that the U.S. trade deficit in goods with the European Union will be $236 billion in 2024, not the $350 billion that Trump claims. And if services, primarily dominated by the United States, are included, it will be less than $60 billion.
To reduce this deficit, the European Union has proposed abolishing all customs duties on goods and opening the door to an increase in imports of certain American products, such as gas. But this is not enough for the White House's host.
But America is impatient
By introducing sometimes prohibitive customs duties on 2 April, Donald Trump wanted to rebalance international trade in favour of the United States, which has an abysmal trade deficit. A week later, the 90-day suspension of sanctions simply gave the U.S. President time to negotiate the new trade relations he wanted.
However, contrary to the triumphalist statements announcing that world leaders were rushing to Washington to sign agreements, only the United Kingdom found common ground by accepting most American demands.
London has accepted the principle of a 10% U.S. tariff and has opened its market to American agricultural products in exchange for a quota of 100,000 vehicles. These vehicles can enter the United States taxed at just 10%, compared with 25% today. British pharmaceutical products will also have privileged access to the U.S. market under conditions yet to be defined.
Why can't the UK be an example?
For Donald Trump, the British agreement is an example to be reproduced with the other European countries, hence the sudden pressure applied on 23 May.
However, the European Union's situation is not comparable with that of the United Kingdom, which has a trade deficit in goods. London's most important goal was to preserve its services sector, the real engine of the economy.
For the European Union, exports of goods are essential, particularly to the United States. However, unlike Chinese products, which are often impossible to replace in the short term, most European products that cross the Atlantic are not essential. American consumers can easily find an alternative to German cars and French wine, but not toys, Christmas decorations or smartphones made in China.
U.S. wants to change the game’s rules
There is no guarantee that 50% of customs duties on European products will be applied on 9 July.
On the other hand, the American President wants to change international trade rules today and is prepared to do anything to achieve this. In his mind, a 10% import tax seems to be a prerequisite for any agreement.
This additional cost would be bearable for European exporters, especially if their foreign competitors also face higher tariffs. But the U.S. President's demands are unlikely to be limited to increased taxation alone. There are many grievances against the European Union, which Trump believes was created to "rip off" the United States.
Negotiations are, therefore, complex between Europeans who are clinging to existing trade agreements to defend their access to the United States and Americans who want to wipe the slate clean to rebalance trade.
The European Union depends on international trade for its prosperity and has much to lose. It is not in a strong negotiating position and does not appear to be truly united, as the interests of some countries are not those of others.
A weaker forecast for Europe
Therefore, there is no doubt that the European countries will emerge weaker from the trade war. The question is simply to what extent.
At best, with a moderate slowdown in exports to the United States, economic activity will remain weak as in recent years. In the event of a significant disruption to transatlantic trade, an economic recession seems inevitable on the old continent.
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