European officials are drafting retaliation plans that go beyond tit-for-tat tariffs, including new digital service taxes and procurement restrictions
Omar Havana/Getty Images
The European Union is preparing new economic countermeasures against the United States after American officials privately told E.U. negotiators last week that President Donald Trump wants even higher tariffs — potentially 15% or more — on most European goods, a sharp escalation from the 10% baseline the two sides had been negotiating. In recent days, Trump has also publicly threatened the E.U. with tariffs of 30%.
That’s the picture that emerges from a bombshell report published Sunday by The Wall Street Journal.
The U.S. demand for ever-higher tariffs apparently came as a surprise to E.U. leaders, who had been moving toward a deal based on the earlier 10% baseline tariff. In response, Germany — previously one of the more cautious voices in the bloc — has now aligned itself with France and others pressing for a tougher stance. As one German official told The Journal: “If they want war, they will get war.”
The comments mark a turning point in transatlantic trade talks and reflect the sharp escalation in Trump’s tariff threats.
As The Journal reports, E.U. officials are now drafting retaliation plans that go beyond tit-for-tat tariffs. Those include new digital service levies, procurement restrictions, and the potential use of the E.U.’s “anticoercion instrument,” a powerful legal tool that’s never been used.
The E.U. sees this as an option of last resort and does not plan to implement it before the Aug. 1 deadline. Still, European hopes of a trade deal happening before the deadline are rapidly waning. Last week, E.U. trade chief Maroš Šefčovič left Washington believing the U.S. is no longer committed to a compromise.
Markets have largely shrugged off tariff headlines in recent weeks, but the scale and uncertainty of Trump’s ever-higher demands could test that complacency. In a memo released over the weekend, JPMorgan $JPM analysts warned that the U.S. tariff rate could exceed 20% if current plans are realized.
If the U.S.-E.U. trade relationship breaks down, both sides could face economic fallout, with multinationals caught in the middle. As The Journal points out, the U.S.-E.U. trade relationship is “the world’s biggest trading relationship,” with “more than $5 billion of goods and services moves between the two economies every day."
The U.S. trade deficit with the E.U. — $606 billion in imports versus $370 billion in exports last year — is a longstanding irritant for Trump, who sees it as a sign that the U.S. is being “taken advantage of.” But economists broadly disagree, saying that trade deficits aren’t inherently bad because they tend to reflect strong consumer demand, a strong currency, and a service-heavy economy that buys more goods than it produces.
In the case of Europe, much of the imbalance stems from high-value imports like pharmaceuticals and luxury cars — products the U.S. doesn’t make at the same scale. And the U.S. runs a surplus in services with Europe, like finance and tech, which Trump’s goods-only focus tends to ignore.
Economists say obsessing over goods ignores the boomerang effect: much of that money returns as European demand for American services, software, and investment, which is in fact where the real profits lie. Broadly speaking, services tend to be significantly higher-margin than manufactured goods, making the overall relationship far more lucrative for the U.S. than the raw trade deficit implies.
The White House appears uninterested in these nuances.
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