The EU’s response to U.S. trade aggression remains complex. Unlike the U.S., which can impose tariffs unilaterally, the EU’s trade response requires consensus among member states, often leading to delayed countermeasures.
The EU Anti-Coercion Instrument (ACI) was designed to provide a unified response, but its eight-week implementation timeline limits its effectiveness.
To counter U.S. tariffs, Brussels has explored multiple strategies:
- Retaliatory Tariffs: The EU could impose levies on key U.S. exports, including soybeans and pharmaceuticals, mirroring its 2018 response.
- Strategic Trade Shifts: Increasing liquefied natural gas (LNG) purchases from the U.S. and boosting defence spending could serve as bargaining chips, similar to previous EU-U.S. trade deals.
- Trade Diversification: Seeking alternative Asian and Latin American markets to reduce dependence on the U.S.
At the same time, internal trade barriers within the EU remain a major obstacle to economic resilience. The Draghi Report highlights how EU regulatory inefficiencies function as a de facto 45% tariff on manufacturing and a 110% tariff on services, making European industries less competitive both internally and externally.
The EU could also decide to accept direct confrontation. As shown by previous crises, the EU needs external threats to take action and this might be the right opportunity to solve (at least some) its internal issues. This will of course require the continent to be compact at times where the US is working actively toward generating disagreements by offering special treatments to some EU members.
While direct confrontation might appear costly (and challenging for public opinions) in the short term especially for those EU members strongly exposed to the US economy, it might be an interesting strategy as the US will, eventually need allies.
The Path Forward: Europe's Trade Autonomy Challenge
Europe's historically high trade openness, once considered a strength, is now seen as a vulnerability. The EU trades more with external partners than within its own borders, reflecting the failure of its internal market to function effectively. Addressing these challenges will require:
- Reducing internal trade barriers to strengthen the single market.
- Enhancing industrial policy to counter the effects of U.S. and Chinese state subsidies.
- Negotiating transatlantic trade agreements to prevent escalating trade disputes.
