Please note that the below was written on the 14 February 2025. In a fast-changing EU-US trade environment, please don’t hesitate to reach out to FTI trade experts to stay abreast of ongoing developments.
Less than a month after President Trump’s official inauguration, the new U.S. administration is putting unprecedented pressure on the EU’s trade and overall political agenda. Last week, President Trump made two major tariff announcements which could significantly impact EU trade and the operations of global firms in the EU. Amid growing trade and geopolitical shifts, how is the EU likely to respond to these US trade threats?
On Monday 10 February 2025, President Trump reinstated the full 25% tariff on steel imports and increased tariffs on aluminium imports from 10% to 25% under Section 232 of the Trade Expansion Act of 1962 (“Section 232”), under which imports can be adjusted where they threaten to impair the national security of the United States.[1] The EU now has until the 12 March, date when these measures will be implemented, to respond to these tariffs and potentially negotiate an exemption. As a reminder, President Trump imposed the initial 232 steel and aluminium tariffs during his first term in 2018. The U.S. would eventually negotiate exemptions for a few of its trading partners, including the EU.[2]
Additionally, on 13 February 2025, President Trump signed an executive order tasking his administration to plan for the imposition of previously announced reciprocal tariffs on every U.S. trading partner, with the aim to address trade imbalances by matching import taxes that other countries impose on U.S. goods.[3] Such a tariff would be rather unique as any horizontal reciprocal tariffs would be incredibly complex to implement, with nearly 1 million different tariffs to be reviewed. However, the ambitious 2 April 2025 deadline set for the entry into force of these tariffs gives the EU some time to negotiate a deal with the Trump administration.
Beyond trade, President Trump also has political and geopolitical objectives which need to be taken into account when considering the EU’s response to U.S. trade measures. Recent U.S. statements on the EU’s defence spending and the war in Ukraine[4], calls to “take over” Greenland[5] and opposition to E.U. tech regulations[6] are all part of President Trump’s agenda with regards to the EU. For these reasons, the EU will also need to carefully assess the impact of its response to U.S. tariffs on Europe’s competitiveness, economy and overall security.
Ultimately, the main objective of the EU remains to avoid the escalation of such trade tensions into a trade war with the United States. It is likely that any EU retaliatory measures will be announced with a view to spark negotiations with the new U.S. administration and possibly obtain a deal or rapid suspension of the measures, similar to what we saw recently with Canada or Mexico[7].
At this stage, it appears that three offers from the EU are on the table which include, a proposal to increase the bloc’s purchases of U.S. LNG, committing to increasing EU defence spending and also purchase more U.S.-made military products, and finally, reducing EU tariffs on U.S. car imports to 2.5%, instead of the current 10%.
So, with the lay of the land and offers on the table, how could the EU retaliate and bring the US to the negotiation table?
Scenario 1: Reinstate Section 232 Countermeasures from 2018
Assessing the current situation, it seems the likely scenario is that the EU will threaten to impose retaliatory measures as rapidly as possible. The easiest and fastest solution is for the EU to announce it will not extend the suspension of its retaliatory measures against the 2018 U.S. Section 232 steel and aluminium tariffs, which are due to expire on 31 March 2025. This would hurt previously targeted producers, as it would reinstate high EU tariffs on products such as U.S. bourbon, motorcycles and orange juice. This would give the EU rapid leverage and sufficient time, around 6 weeks, to open negotiations and find a solution to avoid a trade war. In addition, the costs for European consumers and businesses would be limited as these tariffs would be very targeted and the products could be replaced. On the other hand, the overall leverage would be limited, and it seems likely that the U.S. administration already factored in these counter tariffs.
Scenario 2: The Anti-Coercion Instrument (“ACI”)
Another option for the EU is to make use of its new trade defence tool, the ACI. The goal of the ACI is to push third countries to negotiate by threatening them with very significant trade countermeasures which can have an impact on the EU operations of any global business. Most notably, beyond goods, the ACI also allows the EU to impose measures on services and IP rights. Given the EU’s trade deficit with the U.S. in services, this puts the EU in a strong negotiating position with substantial leverage. The only issue with this response option is that the EU legislative process to implement ACI countermeasures, remains quite lengthy. Given how far reaching some of President Trump’s demands are the EU will have almost no other choice but to initiate the ACI as early as possible to keep the threat credible. Once the instrument is in place, the EU will still have flexibility on which countermeasures to use. Actions will have to be proportionate, and the EU will be careful not to escalate the situation and cause unnecessary damage to its own economy.
Scenario 3: Target U.S. Services
EU officials are currently highlighting that the U.S. is focusing largely on its trade deficit in goods, whereas trade between the EU and the U.S. should be looked at more holistically and include the EU’s trade deficit in services with the U.S., which was of €104 billion in 2023.[8] This push from the EU suggests that U.S. services could also be a target of the EU’s response to the recent U.S. tariffs. On top of the ACI, two other options present themselves. The EU could impact the operations of U.S. Big tech firms through its Digital Markets Act (“DMA”) and Digital Services Act (“DSA”). Under both acts, the EU currently has ongoing investigations against a significant number of U.S. big tech companies, with others potentially on the horizon.[9] Fines can total up to 6% of a company’s global turnover under the DSA and up to 10% of global turnover for the DMA – not an unsubstantial figure for many big tech companies. As a second option, the EU could re-explore the idea of an EU digital services tax, especially as certain EU Member States, such as France, already possess such a mechanism.
Ultimately, the EU’s response to US tariffs is only as strong as the unity of its Member States. There has been much discussion around the fragmentation of the EU and the self-interested attitudes of certain EU leaders. However, on 12 February 2025, following and extraordinary meeting, we saw the 27 EU trade ministers give their full support to the Commission to respond proportionally and responsibly to President Trump’s imposition of tariffs on steel and aluminium.[10] The ministers also stressed that the Commission should maintain an offer of positive cooperation with the United States, in view of removing barriers to transatlantic trade.
It is still early days, and the ground is shifting as we speak. The EU is aiming to find a response that is credible and strong enough to bring the US to the negotiation table. At the same time, ensuring the EU’s competitiveness is the number one priority of the new European Commission. This makes it important for businesses to share information on how countermeasures could impact their operations and supply chains. This information will inform the decision on how the EU will react.
Authors: Danesh Kermabon-Haq, Director and Arne Koeppel, Managing Director in our Brussels office.
[1] The White House, “Fact Sheet: President Donald J. Trump Restores Section 232 Tariffs” (February 2025) <https://www.whitehouse.gov/fact-sheets/2025/02/fact-sheet-president-donald-j-trump-restores-section-232-tariffs/>
[2] US Department of Commerce, “Section 232 National Security Investigation of Steel Imports” <https://www.bis.doc.gov/index.php/232-steel#:~:text=232%20Steel&text=On%20March%208%2C%202018%2C%20President,to%20protect%20our%20national%20security.>
Information on the Exclusion Process
[3] The White House, Fact Sheet: Fact Sheet: President Donald J. Trump Announces “Fair and Reciprocal Plan” on Trade <https://www.whitehouse.gov/fact-sheets/2025/02/fact-sheet-president-donald-j-trump-announces-fair-and-reciprocal-plan-on-trade/>
[4] US Department of Defence, https://www.defense.gov/News/Transcripts/Transcript/Article/4066734/secretary-of-defense-pete-hegseth-press-conference-following-nato-ministers-of/
[5] BBC, https://www.bbc.com/news/articles/crkezj07rzro
[6] European Policy Center, “How the EU should stand up to Trump’s Tech Bros oligarchy” (January 2024) <https://www.epc.eu/en/publications/How-the-EU-should-stand-up-to-Trumps-Tech-Bros-oligarchy~610008>
[7] Reuters, https://www.reuters.com/world/us/trump-says-americans-may-feel-pain-trade-war-with-mexico-canada-china-2025-02-03/
[8] European Commission, DG Trade, “EU trade relations with the United States. Facts, figures and latest developments” (last updated February 2025) <https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/united-states_en>
[9] European Commission: “Supervision of the designated very large online platforms and search engines under DSA” (last updated February 2025) <https://digital-strategy.ec.europa.eu/en/policies/list-designated-vlops-and-vloses>
[10] Council of the European Union: “Informal video conference of trade ministers” (February 2025) <https://www.consilium.europa.eu/en/meetings/fac/2025/02/12/>
