EU plans retaliation strategy as US hardens trade stance before deadline

Business Standard

5 days ago

European Union envoys are set to meet as early as this week to formulate a plan for measures to respond to a possible no-deal scenario with US President Donald Trump, whose tariff negotiating position is seen to have stiffened ahead of an Aug. 1 deadline.
The overwhelming preference is to keep negotiations with Washington on track in a bid for an outcome to the impasse ahead of next month's deadline.
Still, efforts have yet to yield sustained progress following talks in Washington last week, according to people familiar with the matter. Negotiations will continue over the next two weeks.
The US is now seen to want a near-universal tariff on EU goods higher than 10 per cent, with increasingly fewer exemptions limited to aviation, some medical devices and generic medicines, several spirits, and a specific set of manufacturing equipment that the US needs, said the people, who spoke on condition of anonymity to discuss private deliberations.
A spokesperson for the European Commission, which handles trade matters for the bloc, said they had no comment to make on the ongoing negotiations.
The two sides have also discussed a potential ceiling for some sectors, as well as quotas for steel and aluminum and a way to ring-fence supply chains from sources that oversupply the metals, the people said. The people cautioned that even if an agreement were reached it would need Trump's sign off – and his position isn't clear.
'I am confident we'll get a deal done,' US Commerce Secretary Howard Lutnick said on CBS's Face the Nation on Sunday. 'I think all these key countries will figure out it is better to open their markets to the United States of America than to pay a significant tariff.'
Lutnick added that he had spoken to European trade negotiators early Sunday.
Trump's Letter
The US president wrote to the EU earlier in the month, warning that the bloc would face a 30 per cent tariff on most of its exports from Aug. 1. Alongside a universal levy, Trump has hit cars and auto parts with a 25 per cent levy, and steel and aluminum with double that. He's also threatened to target pharmaceuticals and semiconductors with new duties as early as next month, and recently announced a 50 per cent levy on copper. In all, the EU estimates that US duties already cover €380 billion ($442 billion), or about 70 per cent, of its exports to the US.
Before Trump's letter, the EU had been hopeful it was edging toward an initial framework that would allow detailed discussions to continue on the basis of a universal rate of 10 per cent on many of the bloc's exports.
The EU has been seeking wider exemptions than the US is offering, as well as looking to shield the bloc from future sectoral tariffs. While it's long accepted that any agreement would be asymmetrical in favor of the US, the EU will assess the overall imbalance of any deal before deciding whether to pull the trigger on any re-balancing measures, Bloomberg previously reported. The level of pain that member states are prepared to accept varies, and some are open to higher tariff rates if enough exemptions are secured, the people said.
Any agreement would also address non-tariff barriers, cooperation on economic security matters, digital trade consultations, and strategic purchases.
Move Quickly With the prospects of a positive outcome dimming and the deadline looming, the EU is expected to start preparing a plan to move quickly if it can't reach a deal, said the people. Any decision to retaliate would likely need political sign-off from the bloc's leaders because the stakes are so high, the people added.
Countermeasures of any substance would likely provoke an even wider transatlantic trade rift, given Trump's warnings that retaliation against American interests will only invite tougher tactics from his administration.
The bloc has already approved potential tariffs on €21 billion of US goods that could be quickly implemented in response to Trump's metals levies. They target politically-sensitive American states and include products such as soybeans from Louisiana, home to House Speaker Mike Johnson, other agricultural products, poultry, and motorcycles.
The EU has also prepared a list of tariffs on an additional €72 billion of American products in response to Trump's so-called reciprocal levies and automotive duties. They would target industrial goods, including Boeing Co. aircraft, US-made cars, and bourbon whiskey.
It's also working on potential measures that go beyond tariffs, such as export controls and restrictions on public procurement contracts.
Anti-Coercion Tool Bloomberg reported last week that a growing number of EU member states want the bloc to activate its most powerful trade tool, the so-called anti-coercion instrument (ACI), against the US should the two sides fail to reach an acceptable agreement and Trump carries through with his tariff threats.
The ACI would give officials broad powers to take retaliatory action. Those measures could include new taxes on US tech giants, or targeted curbs on US investments in the EU. They could also involve limiting access to certain parts of the EU market or restricting US firms from bidding for public contracts in Europe.
The anti-coercion tool was designed primarily as a deterrent, and if needed, a way to respond to deliberate coercive actions from third countries that use trade measures as a means to pressure the sovereign policy choices of the 27-nation bloc or individual member states.
The commission can propose the use of the ACI, but it's up to member states to determine whether there's a coercion case and if it should be deployed. Throughout the process, the EU would seek to consult with the coercing party to find a resolution.
Member states were briefed on the status of trade talks with the US on Friday.