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BRUSSELS — German Chancellor Olaf Scholz says the European Union would be ready to retaliate if Donald Trump imposes tariffs “within an hour.”
Not so fast.
The U.S. president this week reinstated duties on steel and aluminum that he hit the world with in his first term — and on Thursday announced he would impose “reciprocal” tariffs that could inflict huge harm on the European auto industry.
The European Commission, which represents the bloc’s 27 countries on trade, responded by seeking dialogue.
Yet should negotiations fail, the bloc claims to be far better prepared than last time around. Its strategy: an iron fist in a velvet glove.
“Especially with a personality like Trump, if we don’t react, he’ll trample us,” says Jean-Luc Demarty, who headed the Commission’s trade department during Trump’s first term. “We have all the instruments and we must react effectively on principle. ”
Commission President Ursula von der Leyen has vowed a “firm and proportionate” response to the 25 percent U.S. steel and aluminum tariffs. Calling them unlawful, she said that Trump’s protectionist policies “will not go unanswered.”
But she also extended an olive branch when she met Vice President JD Vance on Tuesday in Paris, in the first high-level meeting between the two administrations. She called for cooperation in tackling a Chinese steel glut, describing it as a “critical” challenge for the two historic allies.
EU trade chief Maroš Šefčovič also urged constructive dialogue in a call on Wednesday with Trump’s designated Commerce Secretary Howard Lutnick and nominee for Trade Representative Jamieson Greer. He won strong support for the Commission’s approach from EU trade ministers at an emergency video call directly after.
For now, at least.
It’s a balancing act for von der Leyen and Šefčovič as Trump sees red over America’s transatlantic trade deficit. The EU is a net exporter of autos, pharmaceuticals and food to the U.S. But it’s also a big importer of services — and that makes Big Tech a potential target for European retaliation.
No more playing defense
After the shock of Trump’s first mandate, and nudged by France, the EU has strengthened its trade defense arsenal — first by revamping its Enforcement Regulation, which enables the EU to respond if breaches by partners in trade agreements harm its commercial interests.
“Those who say the EU is ill-prepared are wrong: During the past term we have prepared ourselves exactly for a scenario that is unfolding at the moment. Because we have expanded our toolbox, we can now better defend our interests,” said Bernd Lange, a senior lawmaker who chairs the European Parliament’s trade committee.
Its first line of retaliation could be symbolic — reinstating the €2.8 billion in tariffs it imposed in response to Trump’s steel and aluminum tariffs back in 2018, including on Harley-Davidson motorcycles, Levi jeans and cranberry juice.
But Brussels knows symbolism alone won’t be enough to deter Trump.
“What we did in 2018 was targeting products that don’t hurt us, but hurt them,” said Demarty, who also worked as economic adviser to Jean-Claude Juncker, the Commission president at the time.
“Politically symbolic products: Harley-Davidson, bourbon whiskey, corn. I was the one who personally added these products back then. My troops were totally tetanized at the idea of adding such sensitive products,” he added.
Another possible leverage is the EU’s regulatory arsenal, especially the bloc’s grip on Big Tech. It’s an area where Washington has skin in the game, with Elon Musk’s X or Mark Zuckerberg’s Meta in the EU’s crosshairs over the tech giants’ content regulation and sharing of data with authorities.
As the world’s largest exporter of services, the U.S. could be a prime target for EU retaliation. Here, Brussels could add restrictions on American consulting and financial firms, revoking intellectual property rights, further restricting data flows, or increasing digital taxes on U.S.-based platforms.
The long game
It was with a Trump 2.0 scenario in mind that the European Commission devised a way to hit back if one of its member states were subjected to economic blackmail, its Anti-Coercion Instrument.
“We now see in this Trump administration that coercion may become a standard form of behavior in U.S. trade policy,” said Ignacio García Bercero, who was the Commission’s point person on U.S. trade during Trump’s first term from 2017 to 2021.
While the tool was designed to put the Commission in the lead, EU countries sought to ensure they would still get to call the shots in determining whether Washington or Beijing crossed the line, and how any injury should be repaired.
A textbook scenario to deploy the tool might be if Trump — with his eye on annexing Greenland — imposes tariffs in a bid to pressure Denmark into surrendering control over the strategic Arctic island.
Although it would first have to negotiate with Washington, the EU could then pull the trigger on its trade “bazooka,” with a process that could lead in as little as six months to increasing customs duties on specific goods, imposing quotas or excluding U.S. companies from public contracts in the EU.
But that all depends on national capitals — where a qualified majority of 15 out of the EU’s 27 member countries would be needed to back the Commission’s proposed course of action.
Should that not happen, “there is a fundamental problem with the way the European Union is working,” García Bercero concluded.
Put another way, the EU may have equipped itself to fight the last trade war — rather than the next one.
For that, argues David Kleimann of the ODI think tank, it needs to create the legal basis for a new tool to respond in real time to a systemic trade threat — like the universal tariffs that Trump threatened on the campaign trail.
“This gap can be temporarily addressed through ad-hoc stand-alone legislation once the need arises,” writes Kleimann. “But the time is now for the institutions to consider adding a more robust instrument of general application to its armoury to equip the Union for the coming era of trade wars.”
This story has been updated.
