“Fear of Tariff Bomb, EU Formulates ‘Carrot and Stick’ 2-Step Strategy”
“Preventive proposal for import expansion… If not, activate high tariff retaliation”
(EU is preparing a two-step strategy to prepare for the feared trade war during Donald Trump’s previous presidential term, according to the Financial Times on the 29th local time.)
According to the report, EU’s second-step strategy is what is known as the ‘carrot and stick’ strategy, in which if Donald Trump is re-elected, they will swiftly propose negotiations, but if negotiations fail and Trump chooses punitive tariffs, EU will retaliate with targeted retaliation.
EU negotiators are planning to discuss with the Trump camp on how they can import more American products before he takes office if he wins the November election.
If these negotiations fail and the Trump administration imposes higher tariffs, the EU Commission will impose retaliatory tariffs of over 50% and is currently compiling a list of goods subject to tariffs.
This strategy is a response to the expectation that if Trump is re-elected, he will first impose a universal tariff of 10% on the EU. If this measure is implemented, it is estimated that EU exports will decrease by approximately 150 billion euros (about 224 trillion won) annually.
A senior EU official said, “We need to show that we are the United States’ partner, not a problem,” and added, “We will seek negotiations, but we are prepared to defend our interests if necessary.”
Donald Trump’s administration had constant friction with the EU, so close that they were referred to as the ‘Transatlantic Alliance.’ This was similar to the trade war with strategic rival China and was called the ‘Transatlantic Trade War’.
The Trump administration decided to apply Section 232 of the Trade Expansion Act in March 2018 for national security threats and imposed tariffs of 25% on steel imports and 10% on aluminum. In response, the EU strongly protested and retaliated with counter-tariffs.
Both sides entered a ‘ceasefire’ in 2021 under President Joe Biden’s administration if they want to avoid repeated past “conflicts,” according to Valdis Dombrovskis, EU Executive Vice President.
The EU has had a large trade deficit with the EU for a long time. Under the Trump administration, the trade deficit with the EU increased from 114 billion euros (170 trillion won) in 2016 to 152 billion euros (227 trillion won) in 2020. This deficit further increased during the Biden administration to 156 billion euros (233 trillion won) in 2023.
However, the current economic growth rate of the EU is less than half that of the U.S., and the analysis suggests that a trade war between the U.S. and the EU could have a greater impact on the EU.
Jan Hatzius, a senior economist at Goldman Sachs, said that during a trade war, “the US will suffer a 0.5% GDP hit, but the EU will incur costs equivalent to 1% of GDP.”
EU officials are also keeping an eye on the political repercussions of economic changes, such as deepened inflation due to the transatlantic trade war. They hope that the offensive targeting European imports to alleviate continuous inflationary pressures on voters’ livelihoods, which occurred during Trump’s previous term, will be restrained.
“We are better prepared now than in the first term of Trump’s presidency, whatever happens this time,” said a senior EU official.