Tariff Tracker, May 24: Trade war fears abound after Trump announces 50% tariffs on EU
In recent weeks, the United States has finalised trade agreements with the UK and China, with details of a staggered India-US trade agreement to be announced in the coming days. With all eyes on the upcoming talks between the US and the European Union (EU), US President Donald Trump has decided to stir the pot yet again.
On Friday, Trump announced that he would impose 50% tariffs on all imports from the EU. He also announced a minimum 25% tariff on Apple smartphones (and subsequently all smartphones) not manufactured in the US.
“It’s time that we play the game the way I know how to play the game,” he told reporters in the Oval Office. “I’m not looking for a deal. We’ve set the deal — it’s at 50 per cent.”
The EU presented a defiant face, with its trade chief calling for a trade agreement based on mutual respect and not “threats.”
“The EU is fully engaged, committed to securing a deal that works for both,” said EU Trade Commissioner Maros Sefcovic on Friday. “EU-US trade is unmatched & must be guided by mutual respect, not threats. We stand ready to defend our interests.”
Markets reacted adversely to Trump’s announcement and fears of a trade war, with the S&P 500 down by 0.7% on Friday, Germany’s DAX down by 1.6% and the UK’s FTSE down by 0.2%.
How are trade relations between the US and the EU currently?
The EU currently faces 25% tariffs on exports of cars and metals, as well as 10% ‘retaliatory’ tariffs on all exports for almost all other goods. The latter will rise to 20% on July 8 if a trade agreement is not concluded by then.
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According to the European Commission, US tariffs currently cover €380 billion (over $432 billion), around 70% of the EU’s goods trade to the US. These could swell to 97% once the US announces further levies on pharmaceuticals, semiconductors, critical minerals and trucks.
According to the Office of the US Trade Representative, the US’s total goods trade with the EU amounted to $975.9 billion in 2024, running a $235.6 billion trade deficit, a 12.9% increase over the previous year.
Data from the European Commission indicates that the US is the EU’s top trading partner, and accounted for over 20% of goods exports in 2024. Germany, Ireland, France and Italy were the top exporters, with exports of over €200 billion (over $227 billion) of machinery and vehicles, €160 billion (over $182 billion) of chemicals and €25 billion (over $28 billion) of food and drink.
The tariffs would adversely impact some nations and industries more than others. Pharmaceutical goods, aerospace, and automobiles will likely be the worst affected.
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Data from the European Commission’s data wing, Eurostat, indicate that medicines were the EU’s top exports to the US in 2024, amounting to nearly €80 billion. And Ireland, which Trump has accused of having “the entire US pharmaceutical industry in its grasp”, would also stand to lose, given that it hosts the production bases of several American pharma companies.
Similarly, the US has been the second major market for the European auto industry. Data from Acea (the European Auto Manufacturers Association) showed that the EU exported 757,654 new vehicles to the US last year, worth €38.9 billion, and imported 169,152 new vehicles from the US, worth €7.8 billion.
So why has Trump announced further tariffs on the EU?
For one, Trump has long maintained a dislike of the trading bloc, remarking on several occasions that it was formed to “screw” with the US. His remarks on Friday add to this perception, and indicate his impatience with the pace of the talks. Analysts who spoke to The New York Times view this announcement as a bid to pressure Europe into bowing to American demands faster.
According to a Bloomberg report, this was in response to an EU presentation, which reportedly covered tariff and non-tariff barriers, and encompassed agreements on economic security, mutual investments and cooperating on global challenges.
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For the EU, reducing tariffs on industrial goods and non-sensitive agricultural exports is imperative. This could be done in phases or through a quota system, Bloomberg reported. The EU document reportedly has a clause to prevent the US from threatening further tariffs while talks are underway.
In the meantime, the EU has already readied itself for contingencies, announcing retaliatory tariffs worth €100 billion ($114 billion) of US exports on May 8, if talks with the US fail. The products targeted tentatively include industrial goods such as Boeing aircraft, American-made cars, and bourbon, which had been removed from a previous list.
Trump has, however, signalled his willingness to delay the tariff implementation if a major European company were willing to make a major investment in the US.