US Threatens EU with 50% Tariff
US President Donald Trump threatened a 50% tariff on European Union goods from June 1st, citing a lack of progress in current trade negotiations. Trump claimed that the EU’s trade barriers, VAT, company penalties, and unfair lawsuits against American companies have led to a trade deficit of over $250,000 per year.
Trade Negotiations Stall
The new threat came hours before a call between EU Trade Commissioner Maros Sefcovic and US Trade Representative Jamieson Greer to find a basis for negotiations to avert a transatlantic trade war. The call follows Brussels’ reaction to the Trump administration with a new list of concessions, similar to those offered to China and Great Britain.
EU-US Trade Deficit
The US had a trade deficit of $235.6 billion with the EU last year, an increase of 12.9% from the previous year. The EU’s surplus with the US was $157 billion, according to Eurostat. Trump claims that the EU was "founded with the main purpose of taking advantage of the United States."
Economic Pressure
Andrew Kenningham, head of Europe Economist for Capital Economics, believes that economic pressure will prevent Trump from pushing Brussels too far. Kenningham stated that the EU negotiators will adhere to their policy of avoiding escalation, threatening some retaliation, but with a delay, while being ready to negotiate.
EU Trade Agreement
The EU has already threatened new tariffs on $107 billion worth of US goods in response to Trump’s former tariffs on aluminum, steel, and European car manufacturers. Brussels is also considering curbs on scrap steel and chemical exports to the US. The EU has a significant surplus in goods, but the US has a surplus in services, with 25% of US services exported to the EU.
US Services Exports
The EU accounts for 42% of US service exports, including financial and digital services and entertainment platforms. Miguel Otero, Senior Fellow for International Political Economy at the Spanish Elcano Royal Institute, believes that the US "has a lot to lose" and that the EU has as much leverage as China.
Tariff Threats
The EU has sworn to start a dispute at the World Trade Organization (WTO) against Trump’s "mutual" tariffs and taxes on cars and car parts. The window for a deal is narrowing as the deadline for the 90-day break for "mutual" tariffs approaches.
Approach to a Higher Tariff Period
The Capital Economy predicts that Trump could drive negotiations to the edge and maintain pressure on trading partners. However, German Minister of Economic Affairs Katherina Reiche emphasized the importance of the US as a trading partner for the EU and stated that a solution is essential because escalation will not leave any winners.
