An escalation of the global trade war appears imminent. What’s next?
The EU Prepares for Trade War Escalation
The Wall Street Journal reports Europe Prepares for a U.S. Trade Fight
The European Union thought it was on the verge of a deal with the U.S. to keep tariffs in check. Now it is readying a counterattack.
U.S. officials told the EU’s trade chief this past week that they expect President Trump to demand further concessions from the bloc to get an agreement, including a baseline tariff on most European goods that could be in the range of 15% or higher, according to people briefed on the talks.
That was an unwelcome surprise for the EU, which had been working toward an agreement that would have kept baseline tariffs at 10%, already a tough concession for some of its 27 countries. The shift prompted Germany, Europe’s biggest economy and its largest exporter, which had previously been more dovish on U.S. retaliation, to swing closer to France’s more confrontational position, according to people close to the discussions.
In the months since Trump took office, EU trade chief Maroš Šefčovič has flown to Washington half a dozen times. He has had multiple calls and texts with U.S. trade officials. And he has said Europe was willing to lower tariffs and buy tens of billions of dollars of U.S. energy products and advanced semiconductors.
The bloc has little to show for his efforts. Earlier this month Trump threatened 30% tariffs on imports of most goods from the EU, up from the 20% the president first floated in April.
Even German officials, who have pressed for a quick deal, no longer see an agreement with the U.S. as the most likely outcome, people familiar with the matter said.
On Friday, Berlin signaled it could support the EU using its so-called anticoercion instrument, a legal tool that lets the bloc hit back at economic bullying with a range of restrictions on trade and investment. It has never been used before.
While U.S. Trade Representative Jamieson Greer suggested the 10% baseline tariff the two sides had negotiated still made sense, Lutnick suggested the levy would need to be higher, a European diplomat said. Šefčovič left his meetings with the understanding that the U.S. was pressing for a baseline tariff of 15% or more, people briefed on the matter said.
German leaders initially understood Trump’s letter threatening 30% tariffs as a last-minute ploy to extract better conditions. They finally snapped after finding out about U.S. officials’ pressure this past week for the EU to accept higher baseline tariffs and no relief for its auto sector. The shift persuaded Berlin to open the door to retaliation, an official with knowledge of the situation said.
The End if Transatlantic Trade
Reuters reports EU to Ramp Up Retaliation Plans as US Tariff deal Prospects Dim
An increasing number of EU members, including Germany, are now considering using wide-ranging “anti-coercion” measures which would let the bloc target U.S. services or curb access to public tenders in the absence of a deal, diplomats say.
The European Commission, which negotiates trade agreements on behalf of the 27-member bloc, had appeared on course for a agreement in which the EU would still have faced a 10% U.S. tariff on most of its exports, with some concessions.
Such hopes now seem dashed after President Donald Trump’s threat to impose a 30% tariff by August 1, and following talks between EU Trade Commissioner Maros Sefcovic and U.S. counterparts in Washington last week.
Sefcovic, who has said a 30% tariff would “practically prohibit” transatlantic trade, delivered a sober report on the current state of play to EU envoys on Friday, diplomats told Reuters.
France has consistently advocated using the ACI, but others have baulked at what some see as a nuclear option. Trump has warned he will retaliate if other countries take action against the United States.
European Commission President Ursula von der Leyen said a week ago that the ACI was created for extraordinary situations, adding: “We are not there yet.”
The Commission would need a qualified majority of 15 countries making up 65% of the EU population to invoke it. It would not do so unless it was confident of passing it, but there are now growing signs of support building, with Germany among the countries saying it should be considered, EU diplomats say.
Qualified Majority
Germany and France together account for approximately 34% of the European Union’s total population. Germany represents 19% and France represents 15% of the EU population. These two countries, along with Italy, comprise almost half (47%) of the EU’s population.
Spain is another 11 percent of the EU. That would push the total 58 percent. If the four largest support the move, it’s highly likely the EU would get to the required 65 percent.
Anticoercion Instrument
The EU Anti-Coercion Instrument is a regulation designed to protect the EU and its member states from economic coercion by third countries. It allows the EU to impose countermeasures, including trade restrictions and investment controls, in response to actions by non-EU countries that attempt to pressure the EU or its member states into specific policy decisions. The primary goal is to deter such coercion, but it also provides a mechanism for responding when deterrence fails.
Purpose: The ACI aims to counter economic coercion, which is defined as a situation where a third country uses trade or investment measures to influence the EU’s or a member state’s policy decisions.Deterrence: The instrument is designed to act as a deterrent, discouraging third countries from engaging in coercive actions.
Response Measures: If deterrence fails, the ACI allows the EU to take various response measures, such as imposing tariffs, quotas, and other trade restrictions.
Scope: The ACI can be used in situations where a third country’s actions affect trade or investment and interfere with the EU’s or a member state’s sovereign choices, even if no formal trade dispute exists.
Legal Basis: The ACI is a regulation, meaning it is directly applicable in all EU member states.Examples: The ACI was partly inspired by China’s actions against Lithuania in 2021, where China reportedly imposed trade restrictions in response to Lithuania’s relationship with Taiwan.
Potential Use: The ACI has been discussed as a potential response to future US tariffs. Some countries, like France, favor its use more readily than others who see it as a “nuclear option”.
Likely Targets
- Trade in services: The US has a trade surplus in services with the EU, so the ACI could target this sector to exert pressure.
- Public procurement: This market is worth around €2 trillion per year in the EU. The ACI could limit US companies’ access to these tenders or impose penalty score adjustments on their bids.
- Access to financial service markets: Restrictions could be placed on US companies seeking to operate within the EU’s financial sector.
- Investment: The EU could restrict US investment in its markets.
- Protection of intellectual property rights: Measures could be taken to limit the protection afforded to US intellectual property within the EU.
- Restrictions on the sale of US goods: This could include chemicals and food products in Europe.
- Specific individuals and companies: If a foreign government uses certain companies to exert economic pressure, the ACI could target them.
Both sections above are AI-Generated but sound right, especially restrictions on services.
The EU had a services trade deficit of €109 billion with the U.S. in 2023, according to the European Parliament.
The EU’s Correct Response
I addressed EU responses on July 14 in How Should the EU, Mexico, China, and Canada Respond to Trump’s Tariffs?
I have two answers. One idea is radical but it would work.
Answer One: Do nothing
Tariffs are a tax on consumers. So it Trump want to be raise taxes on US consumers, then let him.
And if he wants to make the US an island, them let him. Besides, it’s impossible to negotiate with someone who cannot be trusted to honor any deal he makes.
Vietnam thought Trump agreed to 11 percent tariffs only to discover the deal was really 20 percent.
It’s best to ignore Trump, or perhaps praise him. But offering concessions seems to do nothing but get trump demanding more concessions.
Given tariffs are a tax on consumers, so are tariff retaliations.
If your neighbor blows off his foot, do you really want to do the same?
Answer Two: Retaliate by More than Trump Can Take
This is much easier for China than any other country. Trump deescalated tariffs on China when China blocked rare earth exports.
Mexico and Canada could block exports of auto parts. Canada has oil the US needs.
Mexico provides most of the hospital kits for the US. Blocking those kits would cause shortages and negatively impact patient care. It would also cause delays in treatments and compromise patient safety.
Canada and Mexico are also leading exporters of copper to the US. And Canada is the largest Aluminum exporter to the US.
Click on above link for more details.
As expected, the EU is sliding toward option three, some sort of limited retaliation. Let’s see if they pull the trigger on anti-coercion.
With Germany on board, it’s possible. But Trump may throw Germany a bone.
These are not trade “deal” negotiations on the part of the U.S.; these are essentially extortion tactics.
Correct – These are extortion tactics
However, US consumers pay the price.
If the EU retaliates, the EU will pay a price
I have used the following (from the BBC back a few Months) as a guide for trying to figure this all out. I agree with the conclusion, that Trump is correct, in “Some”Instances. I don’t see much wrong with much of what he has requested, but I am not in the room and/or a negotiator in this effort.
It seems blatant overly high Tariffs have been placed onto the US by some Countries, but No Past President apparently cared, or for some other reason, and of course Money always comes to mind, so nothing was done. That’s now changed, but I have yet to mail down how exactly. A lot of conjecture, misrepresentation and the like, but not much to go on either. This is being played very close to the best, and with extremely limited leaks IMO.
BBC :
First, it is important to understand the rules of global trade.
Under the terms of membership of the World Trade Organisation (WTO), countries are permitted to impose tariffs on imports.
Those tariffs can differ depending on the item being imported.
So, for instance, a nation can impose a 10% levy on rice imports and a 25% tariff on car imports.
But under WTO rules, they are not supposed to discriminate between nations when setting the tariff they charge on a particular imported good.
So Egypt, for example, would not be allowed to impose a 2% tariff on wheat coming from Russia, but a 50% tariff on wheat coming from Ukraine.
This is known as the “Most Favoured Nation” (MFN) principle in international trade: everyone has to be subject to the same tariff by the country imposing the tariff.
There is an exception when two nations sign a free trade agreement between themselves that covers most of their trade. Under these circumstances they can charge no tariffs on goods passing between them but maintain tariffs on goods coming from everywhere else in the world.
What tariffs do countries currently have?
While most countries have a range of tariff rates covering different goods imports, they also report an average external tariff to the WTO, which reflects the overall average tariff rate applied to all imports.
The US had an average external tariff of 3.3% in 2023.
That was slightly lower than the UK’s average tariff of 3.8%.
It was also below the European Union’s average tariff of 5% and China’s average tariff of 7.5%.
America’s average tariff was considerably lower than the average tariff of some of its other trading partners.
For instance, India’s average tariff was 17%, while South Korea’s was 13.4%.
America’s average tariff was lower than Mexico’s (6.8%) and Canada’s (3.8%), though trade agreements between the US and these countries mean that American exports to them are not subject to tariffs. The same is true for South Korea, with which the US has a free trade agreement
But, broadly speaking, it is legitimate for Trump to point out that some countries have a higher average tariff on imports than America’s.
And those tariffs push up the cost of many American exports to those countries, which might be said to disadvantage US exporters relative to exporters in those countries selling into the US.
Don’t forget about the non-tariff barriers of which there are very many.
Name a few for us.
He won’t.
Is one of your examples the EU’s refusal to let our antibiotic laden meat into their market? Or the EU’s VAT tax that applies to all goods sold to EU citizens whether or not the goods are domestic or imports?
yes, but it drives purchases by tourists, hence massive runs on US stores by tourists. Chinese and European tourists load up on Polo, Nike, Apple products etc… because they are cheaper to buy here. Obviously that may not help in red states which don’t have as much tourism but it’s a big driver of retail sales in places like NYC.
if Trump wants to even things out then it’s entirely fair for him to impose reciprocal tariffs calculated properly. that’s not what he’s doing.
– if Trump wants to even things out then it’s entirely fair for him to impose reciprocal tariffs calculated properly. that’s not what he’s doing.
> But what then is he exactly doing? I recall seeing him ask for a % to make the field level, but denied by the opposing Country. This has occurred more than once.
The EU is a recent example of this. They were asking for the same % to remain, and counting on it. When it didn’t they walked away, so what do you do? Do You levy a % that is fair within the numbers, but disregard what then? Any unfair number, and it’s perceived as unfair, when it’s not the way that it was… Ugh!!! Of late anyway.
By your reasoning an average tariff of 5% on imports from the EU would be fair right? Thats what you say they use as an average tariff. (We’ll ignore that these are average tariffs, not necessarily tariffs on imports from the USA). So if we want to make everything equally fair trump should raise tariffs on imports from the EU from 3.3% to 5% average. He currently demands 30%. That’s not reciprocal, that’s a huge new trade wall. From someone that is known to not honor his own deals anyway.
The assumption that the playing field is not level is the fundamental error from which all the other bla-bla proceeds.
If there is something wrong with the playing field, than you need to talk about specific things and possible remedies.
If you lose a game, does that mean the playing field was not level?
And what is losing? A trade deficit does not mean you are losing. You buy rare earths from China and they get little papers with numbers … How is that losing? If that is losing, don’t do the trade!
Oftentimes, US consumers are expected to pay more than other countries, because we can “afford it”, with our higher standard of living. This doesn’t make it right, which is what Trump is trying to correct.
Using China as an example, I’d bet the US consumer pays twice as much for a lot of the stuff China makes & exports compared to other developing nations.
Therefore, American’s are subsidizing China’s economy & military growth. Trump plans to put an end to as much of that as possible, and it’s a shame that he was delayed four years in being able to implement this reset.
Again, it won’t be easy, but the status quo is out the freaking door. You can complain endlessly about policy, tactics, messaging, etc but Trump means it when he says, “MAGA!”.
I totally agree!
They get the best margins in the US by far.
Surely most of it goes to The middleman, importers, retailers??
If the manufacturer sold at some massive price difference to one country or another then the goods would be funnelled thru the cheaper destination
It’s probably more on the order of 5x or 10x as much.
Shipping adds to the cost and then whomever in the US re-sells it here is going to add a hefty markup for their own profit and wage costs.
My daughter uses a site in China that shows the actual cost of much of the goods that get sold here at very high markups. It’s not uncommon to see 5x and 10x and even 20x markups by the time it’s sold here.
In the free market suppliers minimise costs and maximise profits, sp prices are what the market can bear.
Do you oppose market pricing?
That’s a bit Marxist isn’t it?
Your conclusion and methodology are misleading.
Between the US and the EU or between the US and Canada, the total tariffs collected as a percentage of trade is very close [about 2.4% for US-EU and about 1.2% for US-Canada]. Average external tariff takes no account of trade agreements between various trading blocks and parties.
The US charges 15% on light trucks, and always has.
That’s steep, but imagine it was 1500% — no tariffs would be paid since it amounts to an embargo.
Comparisons usually require more than a single variable.
The EU’s consternation almost makes it seem that U.S. consumers won’t pay the price of Trump’s tariffs.
OF course US consumers will pay.
The EU sure won’t be lowering price 20% or whatever to eat the cost.
Mexico, Canada, and China are much better equipped for my option 2.
The prospective EU retaliatory measures are a variant of strategy 2, arguably a mix of 1 & 2; they will not try to match US tariffs in toe-to-toe, but they will pick certain (iconic) brands from Red States and products that impact the MAGA donor class. They will exploit political tender points.
There is no point negotiating with Trump because he never keeps his word. Even when you think you have an agreement, he will just come back with more reasons to ask for more concessions. So most countries are dragging out negotiations as long as possible. They may concede a few things, but nothing of significance.
Trump is going to put tariffs on everyone anyway. Might as well let him.
Better for all the other countries in the world to focus on trade with each other, while reducing their trade with the US. They can all benefit from increased trade with each other while the US isolates itself.
Mish: “Both sections above are AI-Generated but sound right.”
Thank you for this source clarity. It is what keeps readers coming back year after year… since 2008-09 for me.
Stagflation takes time to set in but the seeds are being sown. Will this look like the 70s? It may start that way but with our current debt levels this can get out of control rather quickly. Got gold???
If Trump is not careful, most of Europe may apply to join BRICS.
Not likely with the Ukraine war raging. They will foot-drag until 1/20/2029 if possible.
Going after services is the best strategy for the rest of the world.
It’s hard to have much sympathy for Germany. Thinking back on how selfishly Germany (under Schauble, Merkel and Lagarde at the IMF) bullied Greece during the latter’s debt crisis in 2015, Trump’s bullying now is a good case of “what goes around comes around.”
But is hitting the EU in the US’s best interests? If free trade and lowered tariffs lifts all boats, what will high tariffs and a trade war do? Trump has to consider the blow-back effects of excessively high tariffs on the U.S. economy. So, there is a sweet spot. It’s probably somewhere between 10% and 20%.
Let’s do the math. Trump floated a tariff of 20% in April. The EU has apparently been holding out for 10%, but that isn’t quite good enough. I think what TACO really wants is a deal to brag about. So, Trump is trying to get the EU’s attention with “get serious or it’s 30%”. So, I predict the tariff will come out somewhere between 11% and 16%. I predict TACO will accept something like 15.1%, enjoy the headlines, and call it a day.
A sudden tariff shock of this magnitude may cause the EU to go into a deep recession. So, I predict that TACO will ramp up the tariffs slowly, until their full effect kicks in after the November 2026 election.
F* Europe. No longer democratic. Well, Germany France and the UK arent democratic. So he should impose 100% tariffs on those clowns, maybe less on Italy and Hungary and Spain and some others.
They are also hel bent on creating WW3 by attacking Russia. Let them all fall to pieces. As Professor Betz of the UK says, they are all likely to suffer civil war and revolution imminently anyway, mostly by having traitors open the gates from the inside for invasion by the very same people who have been trying to take over Europe since the mid 7th Century
You apparently do not understand what the EU common market is.
What if you buy a car from Germany with parts made in Italy, assembled in Hungary, but sold by a Spanish retail chain?
Gee Tom, you sound angry. Europe is more democratic than the US, Russia, China, India, Pakistan, all of the Middle East, lots of Africa, lots of South America and Latin America. Most European states have by now limited immigration and little chance of asylum for people fleeing war zones. I don’t know Prof Betz, but he sounds like some of these very upset right-wing people.
But one thing is clear: You don’t know Europe, except via the right wing website peeps. I bet you never lived in Europe anywhere. So, your worldview is ideologically bent one way. Europe will not attack Russia as long as this remains at all avoidable. Putin is the loose cannon and the aggressor. He wants all the old USSR countries back, but none of these are eager to be under his thumb. Why? Because the USSR was not “fun to be with”.
There is so much “upside down, backwards and on fire” propaganda going on, that I can see how people like you get pulled into it. But as it is often enough, propaganda uses emotional hooks to get you. It’s very difficult to stay away from all of that.
You had me at “EU’s”. No matter the subject, they can drop dead.
Trump shocked the European with neuroplasticity. His tactic depresses their dopamine. While dealing with them on trade he installed tactical B61-12 in the UK for the first time in twenty years.
“I fart in your general direction.”
This is how you deal with a bully like TACO Trump. Punch him right back in the nose!
In my opinion, doing nothing is the best option for the EU as they do not a definitive negotiating advantage and they can let Trump bury Trump with his extortion of the US citizen in essence.
I thought some US trade court ruled against Trump’s tariff foley and the supreme court was to decide. Seems to me this tariff fiasco points to way too much power in the hands of one individual that needs congressional attention.
EU has a big problem with its pride, it wants to be viewed as one few of global players but it has no cards to play the game. Realisticaly it can only chose one of three options 1/ Go with the US 2/ Go with China 3/ Play it Erdogan way – make promises to both of them to extract maximum value from. But option 3 is dead as EU is not coherent, it can’t play this game. Desperate people do desperate things and this is the case of EU. It will upset the US and China and keep fighting Russia thus putting itself in the corner reserved for losers. I have big doubts that EU will have guts to co-ordinate trade war with Brazil or ASEAN. If not, going against Washington is not a good idea.
Next thing is that EU doesn’t understand that US Treasury has financial problems and that it needs cash asap through tariffs which are import tax levied from US consumers. 15% tariff wouldn’t kill EU exports, they would revive after 6 to 9 months. Goods under 25% tariff bracket are different story but there may be some solution at the end on level of European companies – stop car exports out of the US and replace them with cars exported out of EU.
Or not fight Russia and buy its cheap energy and take its chances that Russia will not try to take it over. After all, Russia can’t even take the Ukraine over and if they go with Russia the war in the Ukraine is basically pointless to fight.
Telling Trump to pound sand is pretty much what the world is doing as trump has only signed one out of the ninety “Trade Deals” he claimed he would sign by now.
Wasn’t it 200 that he claimed earlier? LMAO!
Trump is full of shit and no deal signed by him is worth the paper it is printed on.
Due to Trumps flagrant disregard for our former strong allies in Europe, Germany will soon be making a deal with Russia to buy their LNG and tell US LNG exporters to sell their gas elsewhere.
Collected tariffs will not even make a dent in the deficit and Trumps math is that of a second grader.
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“tell US LNG exporters to sell their gas elsewhere.”
Personally, I’d love to see the whole LNG export pulled back some. It’s driving up natural gas prices here in the US. I just went from $0.39 to $0.65 per therm and there’s two reasons:
LNG exports & NG Power Generation
From what I can tell, there’s been no significant drop in production as of April 2025 according to:
U.S. Dry Natural Gas Production (Million Cubic Feet)
– An escalation of the global trade war appears imminent. What’s next? > Choices Must Be Made!
WSJ Reports:
– The European Union thought it was on the verge of a deal with the U.S. to keep tariffs in check. > So as a result of “Misreading” the situation, which was immensely clear by the way, you’re blaming the other side, rather than looking in the mirror. I bet you are ill prepared for what’s next, and may lead you in the waiting arms of China & Russia. Good Luck with that, as it worked out splendid last time.
– U.S. officials told the EU’s trade chief this past week that they expect President Trump to demand further concessions from the bloc to get an agreement. > Clear as can be.
– That was an unwelcome surprise for the EU, which had been working toward an agreement that would have kept baseline tariffs. > Again, they saw what they wanted to see, so they basically “Misread” the situation in its entirety. Working on the status quo, is not a very wise move, when you have constantly been asked for change, or you get what you got ironically…
– already a tough concession for some of its 27 countries. > Oh well, pick yourselves up, and start paying attention! Now you could be screwed as a result of your incompetence. Put your tail between your legs and ask for forgiveness, and hope you receive it. This may be your last chance, if it even exist…
– The bloc has little to show for his efforts. > Dolts!
They are using delaying tactics. First of all the Democrats are loved by the EU elite and they listen to them and their song is they will win the mid-term and then the next presidential elections so all they have to do is hold on and everything will go back to what it was before. That is very seductive because it means their inaction and ineptitude are transformed into virtue. Secondly, it really is hard to get so many countries to agree to a common policy because each one wants to have their industries favorized. Unfortunately the EU doesn’t have the time nor viable alternatives. We will have resolution soon.
Yep, and the Elites in the US also Love the Democrats and Kamala here too, but it didn’t work out so well. Will it be different in the EU? Not if they don’t play ball and quickly IMO, and they are risking revolt if they keep it up. Some members are and have been fed up, and others may pile on as well.
The EU has a winning horse, but have to pay up for a new saddle. Yes, it’s expensive but worth it, as it comes with a bunch of unmentioned items as well, for playing if you will. Jump on it and RIDE I SAY!!!
They will…
What winning horse is that? A donkey 🫏 at best
The EU is hardly the bastion of free trade. I just paid a 25% tariff on some beach clothes made in Australia for the grandchildren so I believe a 25% on European goods sounds about right.
and this would help you how, exactly? it would increase the cost of European goods here.
Short-term, yes. But that’s the part that all the naysayers here like yourself completely miss or dismiss.
This is a long-term structural change to the way the US does trade.
And remember, a single increase in tariff is a one-time hit. It’s not like inflation that keep rising year after year. Granted, 25% is a big hit, but the EU will eventually get the message and come to the trading table.
You always make it sound like you hate where you live. You should move back to the US so you can enjoy our new Golden Age.
He should move to Australia. Better weather, and tariff-free beach clothes for the grandkids… 😁
Are you sure it was a 25% tariff? I suspect most of it was VAT, as the average EU tariff for non-agricultural goods imported from Australia is 4,2%.
VAT is not a tariff, it’s a sales tax applied to all goods within the domestic market irrespective of where they are produced. Exported goods are ususally exempt from VAT. Example: If I buy something from a German webshop I pay the shop the price excluding VAT. When I receive the goods (I’m outside EU), I pay the domestic VAT on the sales price.
Correct. Economic illiterates buy into Trump’s asinine formula that labels VATs as tariffs
These are not trade “deal” negotiations on the part of the U.S.; these are essentially extortion tactics. The EU should play hardball and include services in any retaliation. If the EU caves under the extortion schemes, the flogging will continue, just in another form.
Why bother? Trump doesn’t keep his word. Might as well set the tarrif at eleventy billion percent and find new trading partners.
exactly. Trump is a bully.give him anything, he’ll be back for more.