Trump's return effect: EU gears up for showdown with US over trade tariffs

With the prospect of a trade war looming large, the EU is fully aware that it would be the worst hit once Trump goes ahead with his promised tariff hikes since it enjoys a trade surplus that’s set to clock $230 billion by end of the year.

While Trump plans to increase import tariffs on products from China to up to 60 per cent, it could be up to 20 per cent on Europe and the rest of the world, including India.

The European Central Bank on Wednesday (November 20, 2024) warned about elevated vulnerabilities including the “trade policy uncertainty” in an apparent allusion to the oncoming tariff spike by the Trump administration.

“The outlook for financial stability is clouded by heightened macro-financial and geopolitical uncertainty together with rising trade policy uncertainty,” an ECB statement quoted its vice-president Luis de Guindos as saying.

Silver lining

The imminent trade war, feared to be worse than his previous term, comes at a difficult time for the region grappling with sluggish economic growth. But the silver lining is that the EU has the distinct advantage of having a template of retaliatory strikes it made in 2018 against some of the most iconic American products during the previous Trump presidency.

Harley-Davidson motorbikes, Levi’s jeans, Zippo lighters and the hugely popular American bourbons were among American products that took the hit when the Trump administration refused to roll back increased import tariffs on European steel and aluminium.

The EU had then slapped Harley-Davidson with an import duty of 56 per cent — up from 6 per cent — sending the makers of the motorbike synonymous with the great American dream and freedom to open roads. Faced with depleted sales, the company then relocated to Thailand inviting strident criticism from President Trump.

“A Harley-Davidson should never be built in another country-never!” Trump had tweeted then.

Also read: American voters will decide Europe's future 

EU prepares for trade war

The tariff uncertainty looms large at a time when EU economies are not in the pink of health and are among the laggards in the post-Covid world. The German automotive industry is affected by sluggish demand and the legendary Volkswagen is reportedly considering shutting three of its ten plants in Germany that employs a total of 300,000 employees.

On the political front, the recent sacking of German finance minister Christian Lindner by Chancellor Olaf Scholz has left the three-party coalition government teetering and an election imminent in February, a good month after Trump takes over for his second stint in White House.

But the EU leaders wasted no time in kick-starting discussions to work their way out of Trump’s tariff plans by utilising the European Political Community Summit held in Budapest, Hungary, on November 07.

French President Emmanuel Macron couldn’t have put it better when he likened Europe to “herbivores” and urged it to become at least “omnivores,”so as not to become a meal for the “carnivores.”

“For me, it’s simple. The world is made up of herbivores and carnivores. If we decide to remain herbivores, then the carnivores will win and we will be a market for them,” he had told the Budapest meeting of EU heads of governments.

In his ominous take on the upcoming tariff tussle with the US, Macron further told European leaders in Budapest that, at the very least, Europe “should choose to become omnivores.”

Macron is by far the loudest advocate of a stronger European bloc to face trading rivals like America and China.

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History with Trump tariffs

It’s, however, some relief for Europe that it has a history of dealing with Trump for four years until Joe Biden replaced him in 2019, although Brussels, where the EU is headquartered, could do little to repair the damage in the last four years.

Not only did the Biden administration retain most of the Trump tariffs, but announced additional taxes of $18 billion on Chinese goods, including much cheaper and stylish electric vehicles that pose a huge threat to the American EV icon, Tesla, whose boss Elon Musk is incidentally a Trump confidante.

What the EU leaders are aware of is the growing trade surplus with America, one of the key issues they would have to address once Trump gets cracking the tariff whip. According to the World Trade Centre, the average American import tariff is 3.3 per cent, even after the previous Trump tenure, as against 5.5 per cent in the EU.

With the American trade deficit with the EU fiscal inching towards $230 billion by the end of the year, well in time for Trump’s inauguration, the fear in Europe is that he wouldn’t lose time to fill these gaps and show the Republicans that he means business even with his closest allies.

Also read: Donald Trump profile: Why he wouldn't disappear from American politics 

The good news

The tariff war and other transnational issues expected to be ignited by the Trump presidency, however, has a bit of good news for the EU that could see a wave of rich Americans heading to the continent.

CNN on Wednesday (November 20, 2024) quoted Henley & Partners that provides citizenship-by-investment services to the wealthy, as confirming a 400 per cent spike in online inquiries by American nationals on seeking the so-called “golden visa” route to Europe.

From a minimum outlay of 250,000 Euros for a “golden visa” in Portugal to 3 million in Austria, the firm also confirmed increasing paid inquiries by wealthy Americans seeking to move to Europe.

For now, all the EU can do is prepare for the imminent tariff strike from Washington and set off its own counter-measures.