Europe prepares for a US trade fight

Mint

5 days ago

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.
Now, EU member states are pressing the bloc's executive body to prepare new and potent measures to hit back against U.S. companies, beyond retaliatory tariffs on goods, if a deal can't be reached by the Aug. 1 deadline set by Trump, the people said.
'All options are on the table," a German official said Friday. The official said there was still time to negotiate a deal but added, 'If they want war, they will get war."
The push to increase potential countermeasures marks a turning point for the EU after months of negotiations to salvage the world's biggest trading relationship. More than $5 billion of goods and services moves between the two economies every day, according to EU data.
The European Commission, which is in charge of the bloc's trade policy, said Sunday that it wants a negotiated, mutually beneficial agreement and remains deeply engaged in negotiations. If no satisfactory outcome is found, all options remain on the table, a spokesman said.
On Sunday, Commerce Secretary Howard Lutnick expressed optimism about reaching an agreement with the EU. 'I am confident we'll get a deal done," Lutnick said on CBS's 'Face the Nation." 'And it will be great for America, because the president has the back of America."
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.
EU officials view the tool as the bloc's most powerful trade weapon, and a last resort. European Commission President Ursula von der Leyen, who leads the EU's executive arm, said earlier this month that the instrument was created for emergencies 'and we are not there yet."
That assessment could change. The commission is already preparing measures that could be introduced using the anticoercion instrument, people briefed on the matter said. After Šefčovič's return from Washington, more member states now say they want the tool to be ready.
European Union trade chief Maroš Šefčovič has said that Europe was willing to reduce tariffs.
The measures that are being readied include possible levies or other restrictions on U.S. digital services and curbs on American companies' access to the bloc's public procurement market, the people said.
That would be in addition to measures the EU has already prepared. The EU earlier drew up two packages of tariffs targeting more than $100 billion of U.S. exports to the bloc, ranging from airplanes to peanut butter and whiskey, although they haven't been put into effect. The second package still needs formal signoff from member states, but both could be activated quickly if needed, officials have said.
European officials and member states still hope a deal is possible. The bloc doesn't plan to launch any retaliation before Trump's Aug. 1 deadline, and the preparation of measures that could be introduced using the anticoercion instrument doesn't necessarily mean the tool will be deployed.
But they are gearing up for a possible fight that they acknowledge could have heavy costs for both sides in a commercial relationship that is valued at trillions of dollars.
The deal the two sides were nearing earlier this month would have seen the EU offer to boost purchases of U.S. energy products and semiconductors and accept a 10% baseline tariff on most goods.
Some elements were still being negotiated, people familiar with the talks said. Those factors included which sectors to exempt from the baseline tariff and what relief Europe's car industry might get from the 25% tariffs it currently faces.
Still, the commission was optimistic. While other U.S. trading partners had received letters outlining higher tariffs they would soon face, Šefčovič told lawmakers on July 9, 'our negotiations have spared the EU from facing higher tariffs."
Three days later, Trump posted a letter on social media threatening the bloc with 30% duties starting Aug. 1.
Šefčovič traveled to Washington this past week to try to understand whether a deal was still possible.
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.
Šefčovič was also told that U.S. tariffs on the bloc's automotive sector were expected to stay at their current 25% level and pharmaceutical tariffs could be introduced at 100%, one of the people said.
France and some other EU nations had long pushed for the EU to take a tougher stance against the U.S., while Germany had encouraged the bloc to seek a quick, preliminary deal with Trump.
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.
Member states now need to determine how many more concessions they might be willing to make to get a deal, and which countermeasures to take if negotiations fail, an EU diplomat said Friday. 'All options will hurt," the diplomat said.
Write to Kim Mackrael at [e-mail] and Bertrand Benoit at [e-mail]